UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
| | |
| Investment Company Act file number | | 811-22374 |
Nuveen Mortgage Opportunity Term Fund 2
(Exact name of registrant as specified in charter)
Nuveen Investments
333 West Wacker Drive, Chicago, IL 60606
(Address of principal executive offices) (Zip code)
Gifford R. Zimmerman
Nuveen Investments
333 West Wacker Drive, Chicago, IL 60606
(Name and address of agent for service)
Registrant’s telephone number, including area code: (312) 917-7700
Date of fiscal year end: December 31
Date of reporting period: June 30, 2019
Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policy making roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. ss.3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
Closed-End Funds
30 June 2019
Nuveen Closed-End Funds
| | |
| JLS | | Nuveen Mortgage Opportunity Term Fund |
| JMT | | Nuveen Mortgage Opportunity Term Fund 2 |
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Funds’ annual and semi-annual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on the Funds’ website (www.nuveen.com), and you will be notified by mail each time a report is posted and provided with a website link to access the report.
If you have already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Funds electronically anytime by contacting the financial intermediary (such as a broker-dealer or bank) through which you hold your Fund shares or, if you are a direct investor, by enrolling at www.nuveen.com/e-reports.
You may elect to receive all future shareholder reports in paper free of charge at any time by contacting your financial intermediary or, if you are a direct investor, (i) by calling 800-257-8787 and selecting option #2 or (ii) by logging into your Investor Center account at www.computershare.com/investor and clicking on “Communication Preferences.” Your election to receive reports in paper will apply to all funds held in your account with your financial intermediary or, if you are a direct investor, to all your directly held Nuveen Funds and any other directly held funds within the same group of related investment companies.
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
Table of Contents
3
Chairman’s Letter to Shareholders
Dear Shareholders,
The worries weighing on markets at the end of 2018 appeared to dissipate in early 2019 as positive economic and corporate earnings news, more dovish signals from central banks and trade progress boosted investor confidence. However, political noise and trade disputes continue to drive short-term market volatility and weigh on longer-term outlooks. Investors are concerned that increased tariffs and a protracted stalemate between the U.S. and its trading partners could dampen business and consumer sentiment, weakening spending and potentially impacting the global economy. Acknowledging similar concerns, the U.S. Federal Reserve recently lowered its benchmark interest rate 0.25% for the first time in a decade and will stop reducing its bond portfolio sooner than planned to help stimulate the U.S. economy. As the current U.S. economic expansion has reached the10-year mark this summer, it’s important to note that economic expansions don’t die of old age, but mature economic cycles can be more vulnerable to an exogenous shock.
Until a clearer picture on trade emerges, more bouts of market turbulence are likely in the meantime. While the downside risks warrant careful monitoring, we believe the likelihood of a near-term recession remains low. Global economic growth is moderating but still expanding, with demand driven by the historically low unemployment in the U.S., Japan and across Europe. Some central banks have begun to adjust monetary policy to help sustain growth and others continue to emphasize their readiness to act, while China’s authorities remain committed to keeping economic growth rates steady with fiscal and monetary policy.
The opportunity set may be narrower, but we believe there is still scope for gains in this environment. Patience and maintaining perspective can help you weather periodic market volatility. We encourage you to work with your financial advisor to assess short-term market movements in the context of your time horizon, risk tolerance and investment goals. On behalf of the other members of the Nuveen Fund Board, we look forward to continuing to earn your trust in the months and years ahead.
Sincerely,
Terence J. Toth
Chairman of the Board
August 23, 2019
4
Portfolio Manager’s Comments
Nuveen Mortgage Opportunity Term Fund (JLS)
Nuveen Mortgage Opportunity Term Fund 2 (JMT)
The investment adviser for both Funds is Nuveen Fund Advisors, LLC (NFA), an affiliate of Nuveen, LLC. NFA is responsible for determining each Fund’s overall investment strategy and monitoring the performance of Wellington Management Company LLP (Wellington Management), thesub-adviser for both Funds. Wellington Management is responsible for implementing each Fund’s direct investments in mortgage-backed securities and other permitted investments. Michael F. Garrett serves as portfolio manager for these Funds.
On May 23, 2019, the Board of Trustees of Nuveen Mortgage Opportunity Term Fund and Nuveen Mortgage Opportunity Term Fund 2 approved a series of proposals that allows shareholders the opportunity to maintain their exposure to securitized credit. In light of the upcoming scheduled termination of Nuveen Mortgage Opportunity Term Fund and Nuveen Mortgage Opportunity Term Fund 2 on November 30, 2019 and February 28, 2020, respectively, these alternate proposals, which replace a previously announced merger proposal, asks shareholders of each Fund to vote to amend the charter and eliminate the term structure. For each Fund, if the Fund’s charter amendment and the other proposals described below are approved by shareholders, the Fund will conduct a tender offer for up to 100% of its outstanding shares at net asset value. If the Fund’s managed assets taking into account shares properly tendered in the tender offer would be $80 million or greater, the tender offer will be completed and the Fund’s term structure will be eliminated. If the Fund’s managed assets after the tender offer would be less than $80 million, the tender offer will be cancelled with no common shares repurchased and instead that Fund will proceed to terminate as scheduled. The Funds currently have an investment objective to generate attractive total returns through opportunistic investments in mortgage-backed securities (MBS). As part of the alternate proposals, shareholders will be asked to vote on a change in investment objective to generate high current income through opportunistic investments in securitized credit. Additionally, JLS and JMT will update their investment policies to invest at least 65% of managed assets in MBS, including residential MBS and commercial MBS and may invest up to 35% innon-mortgage related asset-backed securities including, but not limited to, consumer, auto, collateralized loan obligations, solar, timeshare, aircraft and catastrophe bonds. As a result of these investment policy changes, each of JLS and JMT will change its name. JLS will be renamed “Nuveen Mortgage and Income Fund” and JMT will be renamed “Nuveen Mortgage and Income Fund 2.” Additionally, as part of the alternate proposals, shareholders of each Fund will be asked to vote on a new investment management agreement with Nuveen Fund Advisors, LLC that provides for a lower fund-level management fee at each asset level and a newsub-advisory agreement with Teachers Advisors, LLC.
Here the portfolio manager reviews the Funds management strategy and the performance of the Funds for thesix-month reporting period ended June 30, 2019.
This material is not intended to be a recommendation or investment advice, does not constitute a solicitation to buy, sell or hold a security or an investment strategy and is not provided in a fiduciary capacity. The information provided does not take into account the specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on an investor’s objectives and circumstances and in consultation with his or her advisors.
Certain statements in this report are forward-looking statements. Discussions of specific investments are for illustration only and are not intended as recommendations of individual investments. The forward-looking statements and other views expressed herein are those of the portfolio manager as of the date of this report. Actual future results or occurrences may differ significantly from those anticipated in any forward-looking statements and the views expressed herein are subject to change at any time, due to numerous market and other factors. The Funds disclaim any obligation to update publicly or revise any forward-looking statements or views expressed herein.
For financial recording purposes, the ratings disclosed are the highest rating given by one of the following national rating agencies: Standard & Poor’s (S&P), Moody’s Investors Service, Inc. (Moody’s) or Fitch, Inc. (Fitch). This treatment of split-rated securities may differ from that used for other purposes as for Fund investment policies. Credit ratings are subject to change. AAA, AA, A and BBB are investment grade ratings; BB, B, CCC, CC, C and D are below investment grade ratings. Holdings designated N/R are not rated by these national rating agencies.
Refer to the Glossary of Terms Used in this Report for further definition of the terms used within this section.
5
Portfolio Manager’s Comments(continued)
What key strategies were used to manage the Funds during thissix-month reporting period ended June 30, 2019?
Both Funds seek to generate total returns by investing in a diverse portfolio of mortgage-backed securities (MBS), consisting primarily ofnon-agency residential mortgage-backed securities (RMBS) and commercial mortgage-backed securities (CMBS). Under normal circumstances, both Funds will invest at least 80% of their managed assets in MBS, primarilynon-agency RMBS and CMBS. Both JLS and JMT may be leveraged directly to a maximum effective leverage of 33% of total net asset value.
Our approach to sector allocation has remained consistent since the Funds’ launch. JLS’s since inception date is November 25, 2009 and JMT’s since inception date is February 23, 2010. We maintained our constructive outlook for both CMBS andnon-agency RMBS during the period, with our positioning remaining relatively consistent. While we are constructive on CMBS, we continue to favor residential credit from a relative value perspective, and have a bias to the higher quality collateral types within each sector. The Funds continue to be conservatively positioned within RMBS, with a bias toward higher quality collateral to try to protect against downside risk in the event of a prolonged path toward economic recovery. With an emphasis on the long-term, we continued to focus on finding opportunities to add securities we feel were best positioned to provide stability of principal and attractive income over the duration of the Funds’ limited terms.
During the reporting period, we maintained our constructive outlook for both CMBS andnon-agency RMBS, with our positioning remaining relatively consistent. The Funds continued to be conservatively positioned within RMBS, with a bias toward higher quality collateral to try to protect against downside risk in the event of a prolonged path toward economic recovery.
CMBS posted positive absolute returns at the broad sector level during thesix-month reporting period as interest rates rallied and credit spreads tightened. The spread on the Bloomberg Barclays CMBS Aggregate Index ended the reporting period 17 basis points tighter. Within the sector, lower rated bonds outperformed amid a supportive macro-economic backdrop.
Thenon-agency RMBS market generated strong, positive absolute returns during the reporting period. Performance rebounded after the late 2018 credit marketsell-off and spreads tightened, led by more subordinate tranches. On an absolute basis, RMBS yields are lower, like other credit sectors, however, with spreads nearly unchanged despite lower U.S. Treasury and swap rates. The likelihood of near-term government-sponsored enterprise (GSE) reform legislation remains low, but the risk exists that U.S. housing is slowed by the Federal Housing Finance Agency (FHFA) efforts to reduce the GSE’s footprint.
How did the Funds perform during thissix-month reporting period ended June 30, 2019?
The tables in the Performance Overview and Holding Summaries section of this report provide total returns for thesix-month,one-year, five-year and since inception periods ended June 30, 2019. Each Fund’s total returns at net asset value (NAV) are compared with the performance of a corresponding market index. For thesix-month reporting period, JLS and JMT underperformed the Barclays U.S. Aggregate Bond Index. This index reflects the general performance of the bond market over these periods, but not the specific MBS market in which the Funds primarily invest.
Within the Funds, returns for the reporting period were positive across the broad sectors. The primary contributor to the Funds’ absolute returns was the allocation to residential credit, which performed well in spite of broader macro-economic uncertainty, owing to solid investor demand and supportive housing fundamentals. The allocation to CMBS also positively impacted performance during the reporting period.
6
Legacy subordinated bonds were the largest detractors during the reporting period as their performance can be somewhat volatile, driven more by idiosyncratic factors related to the expected performance of the small number of remaining loans in those deals.
The Funds also used U.S. Treasury futures for duration and yield curve management purposes. These positions had a negative impact during the reporting period.
7
Fund Leverage
IMPACT OF THE FUNDS’ LEVERAGE STRATEGIES ON PERFORMANCE
One important factor impacting the returns of the Funds’ common shares relative to their comparative benchmarks was the Funds’ use of leverage through bank borrowings. The Funds use leverage because our research has shown that, over time, leveraging provides opportunities for additional income and total return, particularly in the recent market environment where short-term market rates are at or near historical lows, meaning that the short-term rates the Fund has been paying on its leveraging instruments in recent years have been much lower than the interest the Fund has been earning on its portfolio securities that it has bought with the proceeds of that leverage.
However, use of leverage can expose Fund common shares to additional price volatility. When a Fund uses leverage, the Fund common shares will experience a greater increase in their net asset value if the securities acquired through the use of leverage increase in value, but will also experience a correspondingly larger decline in their net asset value if the securities acquired through leverage decline in value, which will make the shares’ net asset value more volatile, and total return performance more variable, over time.
In addition, common share income in levered funds will typically decrease in comparison to unlevered funds when short-term interest rates increase and increase when short-term interest rates decrease. Over the last few quarters, short-term interest rates have indeed increased from their extended lows after the 2007-09 financial crisis. This increase has reduced common share net income, and also reduced potential for long-term total returns. Nevertheless, the ability to effectively borrow at current short-term rates is still resulting in enhanced common share income, and management believes that the advantages of continuation of leverage outweigh the associated increase in risk and volatility described above.
The Fund’s use of leverage had a positive impact on the total return performance during this reporting period.
As of June 30, 2019, the Funds’ percentages of leverage are as shown in the accompanying table.
| | | | | | | | |
| | | JLS | | | JMT | |
Effective Leverage* | | | 28.47 | % | | | 29.64 | % |
Regulatory Leverage* | | | 28.47 | % | | | 29.64 | % |
| * | Effective leverage is a Fund’s effective economic leverage, and includes both regulatory leverage and the leverage effects of certain derivative and other investments in a Fund’s portfolio that increase the Fund’s investment exposure. Regulatory leverage consists of preferred shares issued or borrowings of a Fund. Both of these are part of a Fund’s capital structure. A Fund, however, may from time to time borrow on a typically transient basis in connection with its day-to-day operations, primarily in connection with the need to settle portfolio trades. Such incidental borrowings are excluded from the calculation of a Fund’s effective leverage ratio. Regulatory leverage is subject to asset coverage limits set forth in the Investment Company Act of 1940. |
THE FUNDS’ REGULATORY LEVERAGE
Bank Borrowings
As noted above, the Funds employ regulatory leverage through the use of bank borrowings. The Funds’ bank borrowing activities are as shown in the accompanying table.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Current Reporting Period | | | | | | Subsequent to the Close of
the Reporting Period | |
| Fund | | January 1, 2019 | | | Draws | | | Paydowns | | | June 30, 2019 | | | Average Balance
Outstanding | | | | | | Draws | | | Paydowns | | | August 27, 2019 | |
JLS | | $ | 147,200,000 | | | $ | — | | | $ | — | | | $ | 147,200,000 | | | $ | 147,200,000 | | | | | | | $ | — | | | $ | (147,200,000 | ) | | $ | — | |
JMT | | $ | 46,200,000 | | | $ | — | | | $ | — | | | $ | 46,200,000 | | | $ | 46,200,000 | | | | | | | $ | — | | | $ | (46,200,000 | ) | | $ | — | |
Refer to Notes to Financial Statements, Note 8 – Borrowing Arrangements and Note 10 – Subsequent Events for further details.
8
Common Share Information
DISTRIBUTION INFORMATION
The following information regarding the Funds’ distributions is current as of June 30, 2019.
The Funds have a cash flow-based distribution program. Under this program, each Fund seeks to maintain an attractive and stable regular distribution based on the Fund’s net cash flow received from its portfolio investments. Fund distributions are not intended to include expected portfolio appreciation; however, each Fund invests in securities that make payments which ultimately may be fully or partially treated as gains or return of capital for tax purposes. This tax treatment will generally “flow through” to the Fund’s distributions, but the specific tax treatment is often not known with certainty until after the end of the Fund’s tax year. As a result, regular distributions throughout the year are likely to be re-characterized for tax purposes as either long-term gains (both realized and unrealized), or as a non-taxable return of capital.
The figures in the table below provide an estimate as of June 30, 2019 of the sources (for tax purposes) of each Fund’s distributions. These sources estimates include amounts currently estimated to be attributable to realized gains and/or returns of capital. The Funds attribute these non-income sources equally to each regular distribution throughout the fiscal year. The estimated information shown below is for the distributions paid on common shares for all prior months in the current fiscal year. These amounts should not be used for tax reporting purposes, and the distribution sources may differ for financial reporting than for tax reporting. The final determination of the tax characteristics of all distributions paid in 2019 will be made in early 2020 and reported to you on Form 1099-DIV. More details about the tax characteristics of each Fund’s distributions are available onwww.nuveen.com/CEFdistributions.
Data as of June 30, 2019
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Current Month
Estimated Percentage of the Distribution | | | Fiscal YTD
Estimated Per Share Amounts | |
| Fund | | Net Investment
Income | | | Realized
Gains | | | Return of
Capital | | | Total
Distributions | | | Net Investment
Income | | | Realized
Gains | | | Return of
Capital | |
JLS (FYE 12/31) | | | 62.1 | % | | | 0.0 | % | | | 37.9 | % | | $ | 0.6810 | | | $ | 0.4226 | | | $ | 0.0000 | | | $ | 0.2584 | |
JMT (FYE 12/31) | | | 57.0 | % | | | 0.0 | % | | | 43.0 | % | | $ | 0.6750 | | | $ | 0.3849 | | | $ | 0.0000 | | | $ | 0.2901 | |
The following table provides information regarding Fund distributions and total return performance over various time periods. This information is intended to help you better understand whether Fund returns for the specified time periods were sufficient to meet Fund distributions.
Data as of June 30, 2019
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Inception
Date | | | Latest
Monthly
Per Share
Distribution | | | Annualized | | | Cumulative | |
| Fund | | Current
Distribution on
NAV | | | 1-Year
Return on
NAV | | | 5-Year
Return on
NAV | | | Fiscal YTD
Distributions on
NAV | | | Fiscal YTD Return
on NAV | |
JLS (FYE 12/31) | | | 11/25/2009 | | | $ | 0.1135 | | | | 5.85 | % | | | 4.70 | % | | | 5.34 | % | | | 2.93 | % | | | 4.12 | % |
JMT (FYE 12/31) | | | 2/23/2010 | | | $ | 0.1125 | | | | 6.00 | % | | | 4.48 | % | | | 5.16 | % | | | 3.00 | % | | | 4.05 | % |
9
Common Share Information(continued)
Change in Method of Publishing Nuveen Closed-End Fund Distribution Amounts
Beginning on or about November 1, 2019, the Nuveen Closed-End Funds will be discontinuing the practice of announcing Fund distribution amounts and timing via press release. Instead, information about the NuveenClosed-End Funds’ monthly and quarterly periodic distributions to shareholders will be posted and can be found on Nuveen’s enhanced closed-end fund resource page, which is atwww.nuveen.com/closed-end-fund-distributions, along with other Nuveen closed-end fund product updates. Shareholders can expect regular distribution information to be posted on www.nuveen.com on the first business day of each month. To ensure that our shareholders have timely access to the latest information, a subscribe function can be activated at this link here, or at this web page(www.nuveen.com/en-us/people/about-nuveen/for-the-media).
COMMON SHARE REPURCHASES
During August 2019 (subsequent to the close of the reporting period), the Funds’ Board of Trustees reauthorized an open-market share repurchase program, allowing each Fund to repurchase an aggregate of up to approximately 10% of its outstanding shares.
As of June 30, 2019, and since the inception of the Funds’ repurchase programs, the Funds have cumulatively repurchased and retired their outstanding common shares as shown in the accompanying table.
| | | | | | | | |
| | | JLS | | | JMT | |
Common shares cumulatively repurchased and retired | | | 0 | | | | 0 | |
Common shares authorized for repurchase | | | 1,590,000 | | | | 485,000 | |
During the current reporting period, the Fund did not repurchase any of its outstanding common shares.
OTHER COMMON SHARE INFORMATION
As of June 30, 2019, and during the current reporting period, the Funds’ common share prices were trading at a premium/(discount) to their NAVs as shown in the accompanying table.
| | | | | | | | |
| | | JLS | | | JMT | |
Common share NAV | | $ | 23.28 | | | $ | 22.49 | |
Common share price | | $ | 23.22 | | | $ | 22.49 | |
Premium/(Discount) to NAV | | | (0.26 | )% | | | 0.00 | % |
6-month average premium/(discount) to NAV | | | (0.81 | )% | | | (0.31 | )% |
10
Risk Considerations
Fund shares are not guaranteed or endorsed by any bank or other insured depository institution, and are not federally insured by the Federal Deposit Insurance Corporation.
Nuveen Mortgage Opportunity Term Fund (JLS)
Investing in closed-end funds involves risk; principal loss is possible. There is no guarantee the Fund’s investment objectives will be achieved. Closed-end fund shares may frequently trade at a discount or premium to their net asset value. Investing inmortgage-backed securities entails credit risk, the risk that the servicer fails to perform its duties, liquidity risks, interest rate risks, structure risks, pre-payment risk, and geographical concentration risks.Leverage increases return volatility and magnifies the Fund’s potential return and its risks; there is no guarantee a fund’s leverage strategy will be successful. These and other risk considerations including the Fund’slimited term are described in more detail on the Fund’s web page at www.nuveen.com/JLS.
Nuveen Mortgage Opportunity Term Fund 2 (JMT)
Investing in closed-end funds involves risk; principal loss is possible. There is no guarantee the Fund’s investment objectives will be achieved. Closed-end fund shares may frequently trade at a discount or premium to their net asset value. Investing inmortgage-backed securities entails credit risk, the risk that the servicer fails to perform its duties, liquidity risks, interest rate risks, structure risks, pre-payment risk, and geographical concentration risks.Leverage increases return volatility and magnifies the Fund’s potential return and its risks; there is no guarantee a fund’s leverage strategy will be successful. These and other risk considerations including the Fund’slimited term are described in more detail on the Fund’s web page at www.nuveen.com/JMT.
11
| | |
| JLS | | Nuveen Mortgage Opportunity Term Fund Performance Overview and Holding Summaries as of June 30, 2019 |
Refer to Glossary of Terms Used in this Report for further definition of terms used in this section.
Average Annual Total Returns as of June 30, 2019
| | | | | | | | | | | | | | | | |
| | | Cumulative | | | Average Annual | |
| | | 6-Month | | | 1-Year | | | 5-Year | | | Since
Inception | |
| JLS at Common Share NAV | | | 4.12% | | | | 4.70% | | | | 5.34% | | | | 8.22% | |
| JLS at Common Share Price | | | 6.99% | | | | 8.01% | | | | 7.49% | | | | 8.06% | |
| Bloomberg Barclays U.S. Aggregate Bond Index | | | 6.11% | | | | 7.87% | | | | 2.95% | | | | 3.51% | |
Since inception returns are from 11/25/09. Past performance is not predictive of future results. Current performance may be higher or lower than the data shown. Returns do not reflect the deduction of taxes that shareholders may have to pay on Fund distributions or upon the sale of Fund shares. Returns at NAV are net of Fund expenses, and assume reinvestment of distributions. Comparative index return information is provided for the Fund’s shares at NAV only. Indexes are not available for direct investment.
Common Share Price Performance —Weekly Closing Price
12
This data relates to the securities held in the Fund’s portfolio of investments as of the end of the reporting period. It should not be construed as a measure of performance for the Fund itself. Holdings are subject to change.
For financial reporting purposes, the ratings disclosed are the highest rating given by one of the following national rating agencies: Standard & Poor’s Group, Moody’s Investors Service, Inc. or Fitch, Inc. This treatment of split-rated securities may differ from that used for other purposes, such as for Fund investment policies. Credit ratings are subject to change. AAA, AA, A and BBB are investment grade ratings; BB, B, CCC, CC, C and D are below-investment grade ratings. Holdings designated N/R are not rated by these national rating agencies.
Fund Allocation
(% of net assets)
| | | | |
| Mortgage-Backed Securities | | | 122.5% | |
| Asset-Backed Securities | | | 15.1% | |
| Repurchase Agreements | | | 3.7% | |
| Other Assets Less Liabilities | | | (1.5)% | |
Net Assets Plus Borrowings | | | 139.8% | |
| Borrowings | | | (39.8)% | |
Net Assets | | | 100% | |
Credit Quality
(% of total long-term investments)
| | | | |
| U.S. Treasury/Agency | | | 8.3% | |
| AAA | | | 15.8% | |
| AA | | | 3.9% | |
| A | | | 6.5% | |
| BBB | | | 19.8% | |
| BB or Lower | | | 25.0% | |
| N/R (not rated) | | | 20.7% | |
Total | | | 100% | |
13
| | |
| JMT | | Nuveen Mortgage Opportunity Term Fund 2 Performance Overview and Holding Summaries as of June 30, 2019 |
Refer to Glossary of Terms Used in this Report for further definition of terms used in this section.
Average Annual Total Returns as of June 30, 2019
| | | | | | | | | | | | | | | | |
| | | Cumulative | | | Average Annual | |
| | | 6-Month | | | 1-Year | | | 5-Year | | | Since
Inception | |
| JMT at Common Share NAV | | | 4.05% | | | | 4.48% | | | | 5.16% | | | | 8.14% | |
| JMT at Common Share Price | | | 4.53% | | | | 7.92% | | | | 7.48% | | | | 8.04% | |
| Bloomberg Barclays U.S. Aggregate Bond Index | | | 6.11% | | | | 7.87% | | | | 2.95% | | | | 3.58% | |
Since inception returns are from 2/23/10. Past performance is not predictive of future results. Current performance may be higher or lower than the data shown. Returns do not reflect the deduction of taxes that shareholders may have to pay on Fund distributions or upon the sale of Fund shares. Returns at NAV are net of Fund expenses, and assume reinvestment of distributions. Comparative index return information is provided for the Fund’s shares at NAV only. Indexes are not available for direct investment.
Common Share Price Performance —Weekly Closing Price
14
This data relates to the securities held in the Fund’s portfolio of investments as of the end of the reporting period. It should not be construed as a measure of performance for the Fund itself. Holdings are subject to change.
For financial reporting purposes, the ratings disclosed are the highest rating given by one of the following national rating agencies: Standard & Poor’s Group, Moody’s Investors Service, Inc. or Fitch, Inc. This treatment of split-rated securities may differ from that used for other purposes, such as for Fund investment policies. Credit ratings are subject to change. AAA, AA, A and BBB are investment grade ratings; BB, B, CCC, CC, C and D are below-investment grade ratings. Holdings designated N/R are not rated by these national rating agencies.
Fund Allocation
(% of net assets)
| | | | |
| Mortgage-Backed Securities | | | 123.1% | |
| Asset-Backed Securities | | | 16.8% | |
| Repurchase Agreements | | | 3.8% | |
| Other Assets Less Liabilities | | | (1.6)% | |
Net Assets Plus Borrowings | | | 142.1% | |
| Borrowings | | | (42.1)% | |
Net Assets | | | 100% | |
Credit Quality
(% of total long-term investments)
| | | | |
| U.S. Treasury/Agency | | | 8.1% | |
| AAA | | | 16.3% | |
| AA | | | 3.8% | |
| A | | | 7.2% | |
| BBB | | | 19.5% | |
| BB or Lower | | | 25.1% | |
| N/R (not rated) | | | 20.0% | |
Total | | | 100% | |
15
Shareholder Meeting Report
The annual meeting of shareholders was held in the offices of Nuveen on June 27, 2019 for JLS and JMT; at this meeting the shareholders were asked to vote to approve an amendment to the Fund’s Declaration of Trust, to approve the Adoption of a New Investment Objective, a New Investment Management Agreement, a New Sub-Advisory Agreement and to elect Board Members. The meeting was subsequently adjourned to July 30, 2019.
| | | | | | | | |
| | | JLS | | | JMT | |
| | | Common
Shares | | | Common
Shares | |
To approve an amendment to the Fund’s Declaration of Trust | | | | | | | | |
For | | | 5,056,473 | | | | 1,267,454 | |
Against | | | 848,572 | | | | 94,285 | |
Abstain | | | 200,094 | | | | 60,047 | |
BNV | | | 5,494,715 | | | | 1,251,861 | |
Total | | | 11,599,854 | | | | 2,673,647 | |
To approve the adoption of a new investment objective | | | | | | | | |
For | | | 5,063,053 | | | | 1,261,920 | |
Against | | | 844,417 | | | | 97,436 | |
Abstain | | | 197,669 | | | | 62,430 | |
BNV | | | 5,494,715 | | | | 1,251,861 | |
Total | | | 11,599,854 | | | | 2,673,647 | |
To approve a new investment management agreement | | | | | | | | |
For | | | 5,074,491 | | | | 1,269,625 | |
Against | | | 830,629 | | | | 94,909 | |
Abstain | | | 200,019 | | | | 57,252 | |
BNV | | | 5,494,715 | | | | 1,251,861 | |
Total | | | 11,599,854 | | | | 2,673,647 | |
To approve a new investment sub-advisory agreement | | | | | | | | |
For | | | 5,065,877 | | | | 1,269,831 | |
Against | | | 837,394 | | | | 94,703 | |
Abstain | | | 201,868 | | | | 57,252 | |
BNV | | | 5,494,715 | | | | 1,251,861 | |
Total | | | 11,599,854 | | | | 2,673,647 | |
Approval of the Board Members was reached as follows: | | | | | | | | |
Judith M. Stockdale | | | | | | | | |
For | | | 10,548,135 | | | | 2,466,943 | |
Withhold | | | 1,051,719 | | | | 206,704 | |
Total | | | 11,599,854 | | | | 2,673,647 | |
Carole E. Stone | | | | | | | | |
For | | | 10,550,115 | | | | 2,468,244 | |
Withhold | | | 1,049,739 | | | | 205,403 | |
Total | | | 11,599,854 | | | | 2,673,647 | |
Margaret L. Wolff | | | | | | | | |
For | | | 10,549,817 | | | | 2,468,244 | |
Withhold | | | 1,050,037 | | | | 205,403 | |
Total | | | 11,599,854 | | | | 2,673,647 | |
William C. Hunter | | | | | | | | |
For | | | 10,543,017 | | | | 2,468,156 | |
Withhold | | | 1,056,837 | | | | 205,491 | |
Total | | | 11,599,854 | | | | 2,673,647 | |
16
| | |
| JLS | | Nuveen Mortgage Opportunity
Term Fund Portfolio of Investments June 30, 2019 |
| | | (Unaudited) |
| | | | | | | | | | | | | | | | | | | | |
Principal
Amount (000) | | | Description (1) | | Coupon | | | Maturity | | | Ratings (2) | | | Value | |
| |
| | | | LONG-TERM INVESTMENTS – 137.6% (97.4% of Total Investments) | |
| |
| | | | MORTGAGE-BACKED SECURITIES – 122.5% (86.7% of Total Investments) | |
| | | | | |
| $ | 3,200 | | | 280 Park Avenue 2017-280P Mortgage Trust, 144A,(1-Month LIBOR reference rate + 2.119% spread), (3) | | | 4.513% | | | | 9/15/34 | | | | BB– | | | $ | 3,208,016 | |
| | 3,735 | | | Angel Oak Mortgage Trust2019-3, 144A | | | 2.930% | | | | 5/25/59 | | | | AAA | | | | 3,753,784 | |
| | 955 | | | Angel Oak Mortgage Trust I LLC2016-1, 144A | | | 3.500% | | | | 7/25/46 | | | | N/R | | | | 962,811 | |
| | 767 | | | Angel Oak Mortgage Trust I LLC2017-2, 144A | | | 2.478% | | | | 7/25/47 | | | | AAA | | | | 765,319 | |
| | 247 | | | Angel Oak Mortgage Trust LLC, 144A | | | 3.644% | | | | 1/25/47 | | | | AAA | | | | 247,788 | |
| | 1,397 | | | Arroyo Mortgage Trust2018-1, 144A | | | 3.763% | | | | 4/25/48 | | | | AAA | | | | 1,430,688 | |
| | 3,485 | | | Arroyo Mortgage Trust2019-1, 144A | | | 3.805% | | | | 1/25/49 | | | | AAA | | | | 3,562,709 | |
| | 745 | | | BAMLL Commercial Mortgage Securities Trust 2018-DSNY, 144A,(1-Month LIBOR reference rate + 1.700% spread), (3) | | | 4.094% | | | | 9/15/34 | | | | BBB– | | | | 747,676 | |
| | 9 | | | Banc of America Alternative Loan Trust2006-6 | | | 6.000% | | | | 7/25/46 | | | | N/R | | | | 8,781 | |
| | 4,408 | | | BCAP LLC Trust2007-AA1,(1-Month LIBOR reference rate + 0.180% spread), (3) | | | 2.584% | | | | 3/25/37 | | | | Caa3 | | | | 4,346,574 | |
| | 2,504 | | | Bellemeade Re2019-1 Ltd, 144A,(1-Month LIBOR reference rate + 1.300% spread), (3) | | | 3.704% | | | | 3/25/29 | | | | N/R | | | | 2,503,640 | |
| | 1,277 | | | Bunker Hill Loan Depositary Trust2019-1, 144A | | | 3.817% | | | | 10/26/48 | | | | AA+ | | | | 1,298,673 | |
| | 2,628 | | | ChaseFlex Trust Series2007-2,(1-Month LIBOR reference rate + 0.280% spread), (3) | | | 2.684% | | | | 5/25/37 | | | | B3 | | | | 2,502,626 | |
| | 982 | | | CHL Mortgage Pass-Through Trust 2006-HYB1 | | | 4.066% | | | | 3/20/36 | | | | Caa3 | | | | 923,210 | |
| | 730 | | | Citigroup Commercial Mortgage Trust 2015-GC29, 144A | | | 3.110% | | | | 4/10/48 | | | | BBB– | | | | 663,824 | |
| | 848 | | | Civic Mortgage LLC, 144A | | | 3.892% | | | | 6/25/22 | | | | N/R | | | | 846,530 | |
| | 1,205 | | | COLT2018-3 Mortgage Loan Trust, 144A | | | 4.283% | | | | 10/26/48 | | | | BBB | | | | 1,230,470 | |
| | 3,286 | | | COLT2019-1 Mortgage Loan Trust, 144A | | | 3.705% | | | | 3/25/49 | | | | AAA | | | | 3,337,134 | |
| | 315 | | | COMM 2012-CCRE3 Mortgage Trust, 144A | | | 4.911% | | | | 10/15/45 | | | | A– | | | | 314,308 | |
| | 3,250 | | | COMM 2012-CCRE5 Mortgage Trust, 144A | | | 4.465% | | | | 12/10/45 | | | | Baa3 | | | | 3,146,530 | |
| | 2,700 | | | COMM 2013-CCRE9 Mortgage Trust, 144A | | | 4.397% | | | | 7/10/45 | | | | BBB– | | | | 2,459,414 | |
| | 1,645 | | | COMM 2019-521F Mortgage Trust, 144A,(1-Month LIBOR reference rate + 0.900% spread), (3) | | | 3.380% | | | | 6/15/34 | | | | AAA | | | | 1,645,996 | |
| | 2,010 | | | Connecticut Avenue Securities Trust2019-R01, 144A,(1-Month LIBOR reference rate + 0.850% spread), (3) | | | 3.254% | | | | 7/25/31 | | | | BBB– | | | | 2,012,975 | |
| | 545 | | | Connecticut Avenue Securities Trust2019-R03, 144A,(1-Month LIBOR reference rate + 2.150% spread), (3) | | | 4.554% | | | | 9/25/31 | | | | B+ | | | | 548,003 | |
| | 4,335 | | | Core Industrial Trust 2015-CALW, 144A | | | 3.979% | | | | 2/10/34 | | | | B | | | | 4,411,812 | |
| | 2,052 | | | Corevest American Finance2019-1 Trust, 144A | | | 3.324% | | | | 3/15/52 | | | | AAA | | | | 2,129,462 | |
| | 3,910 | | | CSAIL2015-C1 Commercial Mortgage Trust, 144A | | | 3.936% | | | | 4/15/50 | | | | BBB– | | | | 3,681,246 | |
| | 1,476 | | | CSMC 2018-RPL8 Trust, 144A | | | 4.125% | | | | 7/25/58 | | | | N/R | | | | 1,495,731 | |
| | 2,657 | | | Deephaven Residential Mortgage Trust2018-4, 144A | | | 4.080% | | | | 10/25/58 | | | | AAA | | | | 2,695,675 | |
| | 1,889 | | | Deephaven Residential Mortgage Trust2019-2, 144A | | | 3.558% | | | | 4/25/59 | | | | AAA | | | | 1,909,030 | |
| | 2,093 | | | Eagle RE2018-1 Ltd, 144A,(1-Month LIBOR reference rate + 1.700% spread), (3) | | | 4.104% | | | | 11/25/28 | | | | N/R | | | | 2,092,998 | |
| | 3,855 | | | Eagle RE2019-1 Ltd, 144A,(1-Month LIBOR reference rate + 1.250% spread), (3) | | | 3.654% | | | | 4/25/29 | | | | N/R | | | | 3,857,363 | |
| | 7,445 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 2.000% spread), (3) | | | 4.404% | | | | 3/25/31 | | | | B | | | | 7,454,337 | |
| | 3,380 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 2.200% spread), (3) | | | 4.604% | | | | 1/25/30 | | | | B1 | | | | 3,412,159 | |
| | 5,400 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 2.200% spread), (3) | | | 4.604% | | | | 8/25/30 | | | | B | | | | 5,421,773 | |
| | 3,400 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 2.250% spread), (3) | | | 4.654% | | | | 7/25/30 | | | | B+ | | | | 3,435,951 | |
| | 1,815 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 2.500% spread), (3) | | | 4.904% | | | | 5/25/30 | | | | B | | | | 1,845,773 | |
| | 4,165 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 2.550% spread), (3) | | | 4.954% | | | | 12/25/30 | | | | B | | | | 4,229,706 | |
| | 3,570 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 2.800% spread), (3) | | | 5.204% | | | | 2/25/30 | | | | B | | | | 3,675,402 | |
17
| | |
| |
| JLS | | Nuveen Mortgage Opportunity Term Fund(continued) |
| | Portfolio of Investments June 30, 2019 |
| | (Unaudited) |
| | | | | | | | | | | | | | | | | | | | |
Principal
Amount (000) | | | Description (1) | | Coupon | | | Maturity | | | Ratings (2) | | | Value | |
| |
| | | | MORTGAGE-BACKED SECURITIES(continued) | |
| | | | | |
| $ | 1,645 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 2.850% spread), (3) | | | 5.254% | | | | 11/25/29 | | | | BB– | | | $ | 1,694,934 | |
| | 1,650 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 3.000% spread), (3) | | | 5.404% | | | | 10/25/29 | | | | Ba2 | | | | 1,722,044 | |
| | 2,325 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 3.550% spread), (3) | | | 5.594% | | | | 7/25/29 | | | | BB+ | | | | 2,460,933 | |
| | 3,600 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 3.650% spread), (3) | | | 6.054% | | | | 9/25/29 | | | | BB– | | | | 3,830,383 | |
| | 4,414 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 4.000% spread), (3) | | | 6.404% | | | | 5/28/30 | | | | N/R | | | | 4,684,143 | |
| | 3,425 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 4.250% spread), (3) | | | 6.654% | | | | 1/25/29 | | | | AAA | | | | 3,677,380 | |
| | 3,800 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 4.250% spread), (3) | | | 6.654% | | | | 4/25/29 | | | | BBB– | | | | 4,083,193 | |
| | 2,475 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 4.300% spread), (3) | | | 6.704% | | | | 2/25/25 | | | | BBB | | | | 2,647,032 | |
| | 5,814 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 4.450% spread), (3) | | | 6.854% | | | | 1/25/29 | | | | BB+ | | | | 6,191,323 | |
| | 3,400 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 4.450% spread), (3) | | | 6.854% | | | | 2/25/30 | | | | N/R | | | | 3,599,633 | |
| | 2,035 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 4.450% spread), (3) | | | 6.854% | | | | 5/25/30 | | | | N/R | | | | 2,166,963 | |
| | 1,357 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 4.550% spread), (3) | | | 6.954% | | | | 2/25/25 | | | | A | | | | 1,427,753 | |
| | 1,083 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 4.900% spread), (3) | | | 7.304% | | | | 11/25/24 | | | | A2 | | | | 1,194,317 | |
| | 2,153 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 5.000% spread), (3) | | | 7.404% | | | | 7/25/25 | | | | BBB | | | | 2,301,769 | |
| | 2,038 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 5.000% spread), (3) | | | 7.404% | | | | 7/25/25 | | | | BB– | | | | 2,229,650 | |
| | 5,114 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 5.050% spread), (3) | | | 7.454% | | | | 11/25/29 | | | | N/R | | | | 5,636,906 | |
| | 3,528 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 5.250% spread), (3) | | | 7.654% | | | | 10/25/23 | | | | A– | | | | 3,919,640 | |
| | 3,414 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 5.550% spread), (3) | | | 7.954% | | | | 4/25/28 | | | | BBB– | | | | 3,705,210 | |
| | 2,076 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 5.700% spread), (3) | | | 8.104% | | | | 4/25/28 | | | | BB+ | | | | 2,305,263 | |
| | 5,452 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 5.900% spread), (3) | | | 8.304% | | | | 10/25/28 | | | | BBB– | | | | 5,998,534 | |
| | 940 | | | Fannie Mae Connecticut Avenue Securities, 144A,(1-Month LIBOR reference rate + 2.100% spread), (3), (WI/DD) | | | 4.640% | | | | 6/25/39 | | | | N/R | | | | 942,468 | |
| | 1,683 | | | Fannie Mae REMICS | | | 0.000% | | | | 6/25/36 | | | | N/R | | | | 1,488,015 | |
| | 1,326 | | | First Horizon Alternative Mortgage Securities Trust2005-AA7 | | | 4.366% | | | | 9/25/35 | | | | N/R | | | | 1,279,543 | |
| | 1,994 | | | First Horizon Alternative Mortgage Securities Trust2006-FA3 | | | 6.000% | | | | 7/25/36 | | | | Ca | | | | 1,568,918 | |
| | 22,841 | | | Freddie Mac Multifamily Structured Pass Through Certificates, (I/O) | | | 1.714% | | | | 7/25/41 | | | | N/R | | | | 1,366,238 | |
| | 16,460 | | | Freddie Mac Multifamily Structured Pass Through Certificates, (I/O) | | | 1.781% | | | | 9/25/41 | | | | N/R | | | | 1,086,562 | |
| | 17,710 | | | Freddie Mac Multifamily Structured Pass Through Certificates, (I/O) | | | 2.568% | | | | 6/25/42 | | | | N/R | | | | 1,912,545 | |
| | 1,630 | | | Freddie Mac Multifamily Structured Pass Through Certificates, (I/O) | | | 2.910% | | | | 1/25/43 | | | | N/R | | | | 68,840 | |
| | 7,216 | | | Freddie Mac Multifamily Structured Pass Through Certificates, (I/O) | | | 2.182% | | | | 6/25/44 | | | | N/R | | | | 918,304 | |
| | 1,380 | | | Freddie Mac Stacr Trust 2018-HQA2, 144A,(1-Month LIBOR reference rate + 2.300% spread), (3) | | | 4.730% | | | | 10/25/48 | | | | B+ | | | | 1,386,016 | |
| | 3,930 | | | Freddie Mac STACR Trust 2019-DNA1, 144A,(1-Month LIBOR reference rate + 0.900% spread), (3) | | | 3.330% | | | | 1/25/49 | | | | BBB+ | | | | 3,939,595 | |
| | 2,313 | | | Freddie Mac STACR Trust 2019-DNA1, 144A,(1-Month LIBOR reference rate + 2.650% spread), (3) | | | 5.080% | | | | 1/25/49 | | | | B+ | | | | 2,368,012 | |
| | 1,155 | | | Freddie Mac Stacr Trust 2019-HQA1, 144A,(1-Month LIBOR reference rate + 2.350% spread), (3) | | | 4.754% | | | | 2/25/49 | | | | B+ | | | | 1,165,582 | |
| | 935 | | | Freddie Mac STACR Trust 2019-HQA2, 144A,(1-Month LIBOR reference rate + 2.050% spread), (3) | | | 4.454% | | | | 4/25/49 | | | | B+ | | | | 939,357 | |
| | 2,220 | | | Freddie Mac STACR Trust 2019-HRP1, 144A,(1-Month LIBOR reference rate + 1.400% spread), (3) | | | 3.811% | | | | 2/25/49 | | | | BBB+ | | | | 2,220,713 | |
| | 3,518 | | | Freddie Mac Structured Agency Credit Risk Debt Notes,(1-Month LIBOR reference rate + 1.350% spread), (3) | | | 3.754% | | | | 3/25/29 | | | | A+ | | | | 3,540,927 | |
18
| | | | | | | | | | | | | | | | | | | | |
Principal
Amount (000) | | | Description (1) | | Coupon | | | Maturity | | | Ratings (2) | | | Value | |
| |
| | | | MORTGAGE-BACKED SECURITIES(continued) | |
| | | | | |
| $ | 5,800 | | | Freddie Mac Structured Agency Credit Risk Debt Notes,(1-Month LIBOR reference rate + 2.300% spread), (3) | | | 4.704% | | | | 9/25/30 | | | | B | | | $ | 5,820,905 | |
| | 5,875 | | | Freddie Mac Structured Agency Credit Risk Debt Notes,(1-Month LIBOR reference rate + 2.350% spread), (3) | | | 4.754% | | | | 4/25/30 | | | | AAA | | | | 5,967,433 | |
| | 2,925 | | | Freddie Mac Structured Agency Credit Risk Debt Notes,(1-Month LIBOR reference rate + 2.500% spread), (3) | | | 4.904% | | | | 3/25/30 | | | | BB | | | | 2,990,610 | |
| | 3,800 | | | Freddie Mac Structured Agency Credit Risk Debt Notes,(1-Month LIBOR reference rate + 2.650% spread), (3) | | | 5.054% | | | | 12/25/29 | | | | BB– | | | | 3,890,069 | |
| | 2,131 | | | Freddie Mac Structured Agency Credit Risk Debt Notes,(1-Month LIBOR reference rate + 2.900% spread), (3) | | | 5.304% | | | | 7/25/28 | | | | AA+ | | | | 2,155,720 | |
| | 1,000 | | | Freddie Mac Structured Agency Credit Risk Debt Notes,(1-Month LIBOR reference rate + 3.450% spread), (3) | | | 5.854% | | | | 10/25/29 | | | | BB+ | | | | 1,069,265 | |
| | 3,550 | | | Freddie Mac Structured Agency Credit Risk Debt Notes,(1-Month LIBOR reference rate + 3.550% spread), (3) | | | 5.954% | | | | 8/25/29 | | | | Ba2 | | | | 3,787,909 | |
| | 2,500 | | | Freddie Mac Structured Agency Credit Risk Debt Notes,(1-Month LIBOR reference rate + 3.800% spread), (3) | | | 6.204% | | | | 3/25/29 | | | | BBB– | | | | 2,658,846 | |
| | 3,300 | | | Freddie Mac Structured Agency Credit Risk Debt Notes,(1-Month LIBOR reference rate + 3.900% spread), (3) | | | 6.304% | | | | 12/25/27 | | | | A1 | | | | 3,477,112 | |
| | 4,900 | | | Freddie Mac Structured Agency Credit Risk Debt Notes,(1-Month LIBOR reference rate + 3.900% spread), (3) | | | 6.304% | | | | 4/25/29 | | | | BB | | | | 5,279,606 | |
| | 3,266 | | | Freddie Mac Structured Agency Credit Risk Debt Notes,(1-Month LIBOR reference rate + 4.250% spread), (3) | | | 6.654% | | | | 11/25/23 | | | | BBB– | | | | 3,529,329 | |
| | 3,910 | | | Freddie Mac Structured Agency Credit Risk Debt Notes,(1-Month LIBOR reference rate + 4.350% spread), (3) | | | 6.754% | | | | 9/25/30 | | | | N/R | | | | 4,153,170 | |
| | 1,964 | | | Freddie Mac Structured Agency Credit Risk Debt Notes,(1-Month LIBOR reference rate + 4.750% spread), (3) | | | 7.154% | | | | 10/25/24 | | | | AA– | | | | 2,096,201 | |
| | 5,450 | | | Freddie Mac Structured Agency Credit Risk Debt Notes,(1-Month LIBOR reference rate + 5.000% spread), (3) | | | 7.404% | | | | 8/25/29 | | | | N/R | | | | 6,030,827 | |
| | 4,275 | | | Freddie Mac Structured Agency Credit Risk Debt Notes,(1-Month LIBOR reference rate + 5.150% spread), (3) | | | 7.554% | | | | 11/25/28 | | | | Baa3 | | | | 4,726,792 | |
| | 4,340 | | | Freddie Mac Structured Agency Credit Risk Debt Notes,(1-Month LIBOR reference rate + 5.550% spread), (3) | | | 7.954% | | | | 7/25/28 | | | | A– | | | | 4,916,290 | |
| | 2,289 | | | Freddie Mac Structured Agency Credit Risk Debt Notes, 144A | | | 3.743% | | | | 2/25/48 | | | | BBB | | | | 2,306,740 | |
| | 1,305 | | | FREMF17-K68 Mortgage Trust, 144A | | | 3.976% | | | | 10/25/49 | | | | Baa2 | | | | 1,292,302 | |
| | 1,531 | | | FREMF2013-K31 Mortgage Trust, 144A | | | 3.743% | | | | 7/25/46 | | | | Baa1 | | | | 1,561,369 | |
| | 775 | | | FREMF2014-K37 Mortgage Trust, 144A | | | 4.714% | | | | 1/25/47 | | | | AA– | | | | 820,969 | |
| | 3,160 | | | FREMF2015-K44 Mortgage Trust, 144A | | | 3.807% | | | | 1/25/48 | | | | BBB– | | | | 3,171,212 | |
| | 4,045 | | | FREMF 2015-K720 Mortgage Trust, 144A | | | 3.506% | | | | 7/25/22 | | | | Baa3 | | | | 4,045,824 | |
| | 4,362 | | | FREMF 2016-K504 Mortgage Trust, 144A | | | 3.138% | | | | 9/25/20 | | | | N/R | | | | 4,372,207 | |
| | 1,288 | | | FREMF2016-K54 Mortgage Trust, 144A | | | 4.189% | | | | 4/25/48 | | | | BBB– | | | | 1,304,157 | |
| | 1,400 | | | FREMF 2016-K722 Mortgage Trust, 144A | | | 3.971% | | | | 7/25/49 | | | | BBB– | | | | 1,415,378 | |
| | 1,740 | | | FREMF 2017-K725 Mortgage Trust, 144A | | | 4.012% | | | | 2/25/50 | | | | BBB | | | | 1,767,431 | |
| | 905 | | | FREMF 2017-K728 Mortgage Trust, 144A | | | 3.764% | | | | 11/25/50 | | | | BBB– | | | | 903,338 | |
| | 3,250 | | | FREMF 2017-KT01 Multifamily Aggregation Risk Transfer Trust, 144A | | | 4.566% | | | | 2/25/20 | | | | N/R | | | | 3,246,717 | |
| | 895 | | | FREMF 2018-K730 Mortgage Trust, 144A | | | 3.926% | | | | 2/25/50 | | | | BBB | | | | 899,254 | |
| | 2,266 | | | FREMF 2018-K732 Mortgage Trust, 144A | | | 4.194% | | | | 5/25/25 | | | | Baa3 | | | | 2,301,683 | |
| | 1,160 | | | FREMF 2018-K733 Mortgage Trust, 144A | | | 4.218% | | | | 9/25/25 | | | | Baa1 | | | | 1,220,482 | |
| | 1,557 | | | GCAT2018-1 LLC, 144A | | | 3.844% | | | | 6/25/48 | | | | N/R | | | | 1,565,669 | |
| | 3,646 | | | GCAT 2019-NQM1 LLC, 144A | | | 2.985% | | | | 2/25/59 | | | | AAA | | | | 3,664,028 | |
| | 2,355 | | | General Electric Co, 144A,(1-Month LIBOR reference rate + 2.250% spread), (3) | | | 4.644% | | | | 9/15/31 | | | | AA– | | | | 2,357,593 | |
| | 1,914 | | | GMACM Mortgage Loan Trust2005-AF2 | | | 6.000% | | | | 12/25/35 | | | | N/R | | | | 1,882,933 | |
| | 1,812 | | | GMACM Mortgage Loan Trust2005-AR5 | | | 3.234% | | | | 9/19/35 | | | | C | | | | 1,364,766 | |
| | 1,349 | | | GMACM Mortgage Loan Trust2006-AR1 | | | 4.210% | | | | 4/19/36 | | | | N/R | | | | 1,228,294 | |
| | 301 | | | Government National Mortgage Association | | | 3.000% | | | | 1/20/40 | | | | N/R | | | | 310,693 | |
| | 450 | | | Government National Mortgage Association | | | 3.000% | | | | 2/16/40 | | | | N/R | | | | 463,864 | |
| | 1,760 | | | Government National Mortgage Association | | | 3.000% | | | | 11/20/41 | | | | N/R | | | | 1,805,032 | |
| | 1,535 | | | Government National Mortgage Association | | | 2.500% | | | | 9/20/42 | | | | N/R | | | | 1,430,847 | |
| | 1,650 | | | Government National Mortgage Association | | | 3.500% | | | | 8/16/43 | | | | N/R | | | | 1,752,363 | |
| | 783 | | | Government National Mortgage Association | | | 3.000% | | | | 3/20/44 | | | | N/R | | | | 797,367 | |
| | 2,557 | | | Government National Mortgage Association | | | 3.500% | | | | 8/20/44 | | | | N/R | | | | 2,734,289 | |
| | 2,542 | | | Government National Mortgage Association | | | 3.000% | | | | 9/20/44 | | | | N/R | | | | 2,607,167 | |
| | 8,624 | | | Government National Mortgage Association, (I/O) | | | 3.000% | | | | 12/16/27 | | | | N/R | | | | 728,851 | |
| | 641 | | | Government National Mortgage Association, (I/O) | | | 4.500% | | | | 10/20/39 | | | | N/R | | | | 52,097 | |
19
| | |
| |
| JLS | | Nuveen Mortgage Opportunity Term Fund(continued) |
| | Portfolio of Investments June 30, 2019 |
| | (Unaudited) |
| | | | | | | | | | | | | | | | | | | | |
Principal
Amount (000) | | | Description (1) | | Coupon | | | Maturity | | | Ratings (2) | | | Value | |
| |
| | | | MORTGAGE-BACKED SECURITIES(continued) | |
| | | | | |
| $ | 1,275 | | | GS Mortgage Securities Corp Trust 2017-500K, 144A,(1-Month LIBOR reference rate + 1.800% spread), (3) | | | 4.194% | | | | 7/15/32 | | | | N/R | | | $ | 1,269,439 | |
| | 2,370 | | | GS Mortgage Securities Trust2017-GS5, 144A | | | 3.509% | | | | 3/10/50 | | | | BBB– | | | | 2,186,264 | |
| | 2,625 | | | GS Mortgage Securities Trust2017-GS6, 144A | | | 3.243% | | | | 5/10/50 | | | | BBB– | | | | 2,255,446 | |
| | 2,699 | | | GSAA Home Equity Trust2007-8,(1-Month LIBOR reference rate + 0.450% spread), (3) | | | 2.854% | | | | 8/25/37 | | | | B1 | | | | 2,626,249 | |
| | 1,570 | | | Home Re2018-1 Ltd, 144A,(1-Month LIBOR reference rate + 1.600% spread), (3) | | | 4.030% | | | | 10/25/28 | | | | N/R | | | | 1,567,360 | |
| | 1,066 | | | IndyMac INDA Mortgage Loan Trust2007-AR3 | | | 3.686% | | | | 7/25/37 | | | | N/R | | | | 986,535 | |
| | 2,493 | | | IndyMac INDX Mortgage Loan Trust 2005-AR11 | | | 3.926% | | | | 8/25/35 | | | | Caa3 | | | | 2,251,064 | |
| | 1,989 | | | IndyMac INDX Mortgage Loan Trust2007-AR5 | | | 3.844% | | | | 5/25/37 | | | | Ca | | | | 1,894,163 | |
| | 1,705 | | | JP Morgan Chase Commercial Mortgage Securities Trust2011-C5, 144A | | | 5.554% | | | | 8/15/46 | | | | Baa3 | | | | 1,732,157 | |
| | 1,532 | | | JP Morgan Mortgage Trust2006-A6 | | | 4.415% | | | | 10/25/36 | | | | N/R | | | | 1,422,360 | |
| | 2,717 | | | LSTAR Securities Investment Ltd2019-3, 144A,(1-Month LIBOR reference rate + 1.500% spread), (3) | | | 3.940% | | | | 4/01/24 | | | | N/R | | | | 2,716,108 | |
| | 3,672 | | | LSTAR Securities Investment Ltd2019-4, 144A,(1-Month LIBOR reference rate + 1.500% spread), (3) | | | 3.940% | | | | 5/01/24 | | | | N/R | | | | 3,673,402 | |
| | 2,035 | | | LSTAR Securities Investment Trust2019-1, 144A,(1-Month LIBOR reference rate + 1.700% spread), (3) | | | 4.140% | | | | 3/01/24 | | | | N/R | | | | 2,040,202 | |
| | 1,153 | | | LSTAR Securities Investment Trust2019-2, 144A,(1-Month LIBOR reference rate + 1.500% spread), (3) | | | 3.940% | | | | 4/01/24 | | | | N/R | | | | 1,153,365 | |
| | 1,461 | | | Merrill Lynch Mortgage Backed Securities Trust Series2007-2, (H15T1Y reference rate + 2.400% spread), (3) | | | 4.690% | | | | 8/25/36 | | | | Caa2 | | | | 1,448,046 | |
| | 2,142 | | | Merrill Lynch Mortgage Backed Securities Trust Series2007-3 | | | 4.302% | | | | 6/25/37 | | | | N/R | | | | 1,746,894 | |
| | 3,350 | | | MFA 2017-NPL1 LLC, 144A | | | 3.352% | | | | 11/25/47 | | | | N/R | | | | 3,335,081 | |
| | 930 | | | Mill City Mortgage Loan Trust2018-1, 144A | | | 3.250% | | | | 5/25/62 | | | | AAA | | | | 942,436 | |
| | 2,133 | | | Mill City Mortgage Loan Trust2018-3, 144A | | | 3.500% | | | | 8/25/58 | | | | Aaa | | | | 2,187,985 | |
| | 905 | | | Morgan Stanley Capital I Trust2017-CLS, 144A,(1-Month LIBOR reference rate + 1.950% spread), (3) | | | 4.344% | | | | 11/15/34 | | | | Ba3 | | | | 900,366 | |
| | 5,205 | | | Morgan Stanley Capital I Trust2017-CLS, 144A,(1-Month LIBOR reference rate + 2.600% spread), (3) | | | 4.994% | | | | 11/15/34 | | | | B3 | | | | 5,181,923 | |
| | 325 | | | Morgan Stanley Mortgage Loan Trust 2007-15AR | | | 3.703% | | | | 11/25/37 | | | | CCC | | | | 276,173 | |
| | 5,030 | | | MSSG Trust 2017-237P, 144A | | | 3.865% | | | | 9/13/39 | | | | BB– | | | | 4,958,476 | |
| | 405 | | | New Residential Mortgage Loan Trust2016-3, 144A | | | 3.250% | | | | 9/25/56 | | | | Aaa | | | | 412,335 | |
| | 1,975 | | | New Residential Mortgage Loan Trust2018-4, 144A,(1-Month LIBOR reference rate + 0.900% spread), (3) | | | 3.304% | | | | 1/25/48 | | | | Aaa | | | | 1,972,417 | |
| | 3,715 | | | New Residential Mortgage Loan Trust 2019-NQM3, 144A | | | 2.802% | | | | 7/25/49 | | | | AAA | | | | 3,720,981 | |
| | 579 | | | Oak Hill Advisors Residential Loan Trust 2017-NPLA, 144A | | | 3.000% | | | | 6/25/57 | | | | N/R | | | | 578,358 | |
| | 2,443 | | | PMT Credit Risk Transfer Trust2019-1R, 144A,(1-Month LIBOR reference rate + 2.000% spread), (3) | | | 4.429% | | | | 3/27/24 | | | | N/R | | | | 2,445,207 | |
| | 1,615 | | | Pretium Mortgage Credit Partners I 2018-NPL4 LLC, 144A | | | 4.826% | | | | 9/25/58 | | | | N/R | | | | 1,634,423 | |
| | 1,655 | | | Pretium Mortgage Credit Partners I 2019-NPL1 LLC, 144A | | | 4.213% | | | | 7/25/60 | | | | N/R | | | | 1,679,300 | |
| | 3,090 | | | Progress Residential 2019-SFR2 Trust, 144A | | | 3.147% | | | | 5/17/36 | | | | Aaa | | | | 3,142,736 | |
| | 1,926 | | | PRPM2018-2 LLC, 144A | | | 4.000% | | | | 8/25/23 | | | | N/R | | | | 1,943,220 | |
| | 3,212 | | | PRPM2018-3 LLC, 144A | | | 4.483% | | | | 10/25/23 | | | | N/R | | | | 3,260,048 | |
| | 2,211 | | | PRPM2019-2 LLC, 144A | | | 3.967% | | | | 4/25/24 | | | | N/R | | | | 2,243,308 | |
| | 1,714 | | | Radnor RE2019-1 Ltd, 144A,(1-Month LIBOR reference rate + 1.250% spread), (3) | | | 3.654% | | | | 2/25/29 | | | | N/R | | | | 1,717,525 | |
| | 2,505 | | | RALI Series2007-QS2 Trust | | | 6.250% | | | | 1/25/37 | | | | Caa3 | | | | 2,321,276 | |
| | 6,395 | | | RAMP Series2006-NC2 Trust,(1-Month LIBOR reference rate + 0.290% spread), (3) | | | 2.694% | | | | 2/25/36 | | | | Aaa | | | | 6,386,921 | |
| | 21 | | | RFMSI Series2006-SA2 Trust | | | 5.257% | | | | 8/25/36 | | | | N/R | | | | 19,550 | |
| | 1 | | | RFMSI Series2006-SA3 Trust | | | 5.250% | | | | 9/25/36 | | | | N/R | | | | 583 | |
| | 1,327 | | | RFMSI Series2007-SA2 Trust | | | 4.903% | | | | 4/25/37 | | | | N/R | | | | 1,277,734 | |
| | 1,127 | | | RFMSI Series2007-SA3 Trust | | | 5.217% | | | | 7/27/37 | | | | N/R | | | | 1,002,812 | |
| | 2,344 | | | Sequoia Mortgage Trust2007-1 | | | 4.335% | | | | 2/20/47 | | | | N/R | | | | 2,193,186 | |
| | 1,855 | | | Spruce Hill Mortgage Loan Trust2019-SH1, 144A | | | 3.395% | | | | 4/29/49 | | | | AAA | | | | 1,871,887 | |
| | 4,296 | | | STACR Trust 2018-HRP1, 144A,(1-Month LIBOR reference rate + 1.650% spread), (3) | | | 4.054% | | | | 4/25/43 | | | | BB– | | | | 4,313,754 | |
| | 230 | | | STACR Trust 2018-HRP1, 144A,(1-Month LIBOR reference rate + 3.750% spread), (3) | | | 6.154% | | | | 4/25/43 | | | | N/R | | | | 236,401 | |
| | 1,570 | | | STACR Trust 2018-HRP2, 144A,(1-Month LIBOR reference rate + 1.250% spread), (3) | | | 3.654% | | | | 2/25/47 | | | | A | | | | 1,576,896 | |
| | 701 | | | STARM Mortgage Loan Trust2007-4 | | | 4.307% | | | | 10/25/37 | | | | CCC | | | | 659,360 | |
20
| | | | | | | | | | | | | | | | | | | | |
Principal
Amount (000) | | | Description (1) | | Coupon | | | Maturity | | | Ratings (2) | | | Value | |
| |
| | | | MORTGAGE-BACKED SECURITIES(continued) | |
| | | | | |
| $ | 4,539 | | | Structured Adjustable Rate Mortgage Loan Trust Series2007-6,(1-Month LIBOR reference rate + 0.190% spread), (3) | | | 2.594% | | | | 7/25/37 | | | | B2 | | | $ | 4,441,156 | |
| | 891 | | | Towd Point Mortgage Trust2018-5, 144A | | | 3.250% | | | | 7/25/58 | | | | AAA | | | | 909,815 | |
| | 2,473 | | | Towd Point Mortgage Trust2019-1, 144A | | | 3.750% | | | | 3/25/58 | | | | AAA | | | | 2,581,919 | |
| | 1,146 | | | Towd Point Mortgage Trust2019-SJ1, 144A | | | 3.750% | | | | 11/25/58 | | | | AAA | | | | 1,158,421 | |
| | 5,560 | | | Towd Point Mortgage Trust2019-SJ2, 144A | | | 4.250% | | | | 11/25/58 | | | | AA | | | | 5,725,999 | |
| | 625 | | | Towd Point Mortgage Trust, 144A | | | 3.750% | | | | 5/25/58 | | | | AAA | | | | 648,211 | |
| | 2,090 | | | Vericrest Opportunity Loan Trust 2019-NPL2, 144A | | | 3.967% | | | | 2/25/49 | | | | N/R | | | | 2,109,717 | |
| | 930 | | | Vericrest Opportunity Loan Trust 2019-NPL3, 144A | | | 3.967% | | | | 3/25/49 | | | | N/R | | | | 937,095 | |
| | 1,824 | | | Verus Securitization Trust2019-2, 144A | | | 3.211% | | | | 4/25/59 | | | | AAA | | | | 1,837,961 | |
| | 2,250 | | | VNDO 2012-6AVE Mortgage Trust, 144A | | | 3.448% | | | | 11/15/30 | | | | A– | | | | 2,285,538 | |
| | 512 | | | VOLT LXII LLC, 144A | | | 3.125% | | | | 9/25/47 | | | | N/R | | | | 513,305 | |
| | 3,470 | | | VOLT LXIV LLC, 144A | | | 4.625% | | | | 10/25/47 | | | | N/R | | | | 3,463,662 | |
| | 3,361 | | | VOLT LXXII LLC, 144A | | | 4.213% | | | | 10/26/48 | | | | N/R | | | | 3,382,259 | |
| | 3,097 | | | VOLT LXXIII LLC, 144A | | | 4.458% | | | | 10/25/48 | | | | N/R | | | | 3,125,918 | |
| | 2,513 | | | VOLT LXXIV LLC, 144A | | | 4.581% | | | | 11/25/48 | | | | N/R | | | | 2,550,384 | |
| | 1,384 | | | WaMu Mortgage Pass-Through Certificates Series 2006-AR18 Trust | | | 3.460% | | | | 1/25/37 | | | | N/R | | | | 1,277,598 | |
| | 1,545 | | | WaMu Mortgage Pass-Through Certificates Series2006-AR7 Trust, (12MTA reference rate + 0.980% spread), (3) | | | 3.461% | | | | 7/25/46 | | | | Caa3 | | | | 1,488,785 | |
| | 2,335 | | | Wells Fargo Commercial Mortgage Trust 2015-LC22 | | | 4.695% | | | | 9/15/58 | | | | BBB– | | | | 2,281,359 | |
| | 3,695 | | | Wells Fargo Commercial Mortgage Trust2016-C33 | | | 3.426% | | | | 3/15/59 | | | | Aaa | | | | 3,871,386 | |
| | 2,350 | | | Wells Fargo Commercial Mortgage Trust2017-C39 | | | 4.118% | | | | 9/15/50 | | | | A– | | | | 2,384,476 | |
| | 3,304 | | | Wells Fargo Mortgage Backed Securities2019-1 Trust, 144A | | | 4.000% | | | | 11/25/48 | | | | AAA | | | | 3,378,313 | |
| | 1,720 | | | WFRBS Commercial Mortgage Trust2012-C8, 144A | | | 5.053% | | | | 8/15/45 | | | | Baa3 | | | | 1,723,642 | |
| | 2,430 | | | WFRBS Commercial Mortgage Trust2014-C20, 144A | | | 3.986% | | | | 5/15/47 | | | | N/R | | | | 1,960,525 | |
| $ | 516,535 | | | Total Mortgage-Backed Securities (cost $447,640,546) | | | | | | | | | | | | | | | 453,208,691 | |
| | | | | |
Principal
Amount (000) | | | Description (1) | | Coupon | | | Maturity | | | Ratings (2) | | | Value | |
| |
| | | | ASSET-BACKED SECURITIES – 15.1% (10.7% of Total Investments) | |
| | | | | |
| $ | 2,298 | | | AASET2018-2 US Ltd, 144A | | | 4.454% | | | | 11/18/38 | | | | A | | | $ | 2,348,037 | |
| | 1,550 | | | ALM VII R Ltd, 144A,(3-Month LIBOR reference rate + 4.040% spread), (3) | | | 6.637% | | | | 10/15/28 | | | | Baa3 | | | | 1,550,141 | |
| | 2,620 | | | Atlas Senior Loan Fund IX Ltd, 144A,(3-Month LIBOR reference rate + 2.550% spread), (3) | | | 5.311% | | | | 4/20/28 | | | | BBB– | | | | 2,528,599 | |
| | 374 | | | Avant Loans Funding Trust2017-B, 144A | | | 3.380% | | | | 4/15/21 | | | | N/R | | | | 373,960 | |
| | 1,360 | | | Avery Point V CLO Ltd, 144A,(3-Month LIBOR reference rate + 3.100% spread), (3) | | | 5.688% | | | | 7/17/26 | | | | Baa3 | | | | 1,360,116 | |
| | 1,250 | | | Avis Budget Rental Car Funding AESOP LLC, 144A | | | 3.450% | | | | 3/20/23 | | | | Aaa | | | | 1,280,040 | |
| | 2,305 | | | Bowman Park CLO Ltd, 144A,(3-Month LIBOR reference rate + 3.350% spread), (3) | | | 5.874% | | | | 11/23/25 | | | | BBB– | | | | 2,306,342 | |
| | 1,385 | | | DB Master Finance LLC, 144A | | | 3.787% | | | | 5/20/49 | | | | BBB | | | | 1,414,528 | |
| | 3,743 | | | Domino’s Pizza Master Issuer LLC, 144A | | | 3.082% | | | | 7/25/47 | | | | BBB+ | | | | 3,748,977 | |
| | 1,000 | | | Galaxy XVIII CLO Ltd, 144A,(3-Month LIBOR reference rate + 1.100% spread), (3) | | | 3.697% | | | | 7/15/31 | | | | AAA | | | | 993,455 | |
| | 3,535 | | | GM Financial Automobile Leasing Trust2019-1 | | | 3.950% | | | | 5/22/23 | | | | A– | | | | 3,614,320 | |
| | 4,075 | | | Hertz Vehicle Financing II LP, 144A | | | 3.710% | | | | 3/25/23 | | | | Aaa | | | | 4,181,620 | |
| | 2,980 | | | Hertz Vehicle Financing II LP, 144A | | | 3.420% | | | | 5/25/25 | | | | Aaa | | | | 3,043,795 | |
| | 1,500 | | | Madison Park Funding XIX Ltd, 144A,(3-Month LIBOR reference rate + 1.750% spread), (3) | | | 4.270% | | | | 1/22/28 | | | | Aa2 | | | | 1,499,977 | |
| | 970 | | | Octagon Investment Partners XIX Ltd, 144A,(3-Month LIBOR reference rate + 3.500% spread), (3) | | | 6.097% | | | | 4/15/26 | | | | A3 | | | | 971,387 | |
| | 4,041 | | | Prestige Auto Receivables Trust2016-2, 144A | | | 3.910% | | | | 11/15/22 | | | | BBB+ | | | | 4,095,721 | |
| | 172 | | | Prosper Marketplace Issuance Trust Series2017-1, 144A | | | 3.480% | | | | 9/15/23 | | | | BBB– | | | | 172,219 | |
| | 5,500 | | | Sofi Consumer Loan Program2016-3 LLC, 144A | | | 4.490% | | | | 12/26/25 | | | | N/R | | | | 5,647,686 | |
| | 388 | | | Sonic Capital LLC, 144A | | | 4.026% | | | | 2/20/48 | | | | BBB | | | | 398,469 | |
| | 1,125 | | | Toyota Auto Loan Extended Note Trust2019-1, 144A | | | 2.560% | | | | 11/25/31 | | | | AAA | | | | 1,137,622 | |
| | 1,550 | | | United Auto Credit Securitization Trust2017-1, 144A | | | 5.090% | | | | 3/10/23 | | | | BBB– | | | | 1,562,546 | |
| | 819 | | | Vantage Data Centers Issuer LLC, 144A | | | 4.072% | | | | 2/16/43 | | | | A– | | | | 841,409 | |
| | 2,000 | | | Westlake Automobile Receivables Trust2017-1, 144A | | | 5.050% | | | | 8/15/24 | | | | BBB– | | | | 2,036,043 | |
| | 3,595 | | | Westlake Automobile Receivables Trust2017-2, 144A | | | 3.280% | | | | 12/15/22 | | | | AA– | | | | 3,628,594 | |
21
| | |
| |
| JLS | | Nuveen Mortgage Opportunity Term Fund(continued) |
| | Portfolio of Investments June 30, 2019 |
| | (Unaudited) |
| | | | | | | | | | | | | | | | | | | | |
| | | | | |
Principal
Amount (000) | | | Description (1) | | Coupon | | | Maturity | | | Ratings (2) | | | Value | |
| |
| | | | ASSET-BACKED SECURITIES(continued) | |
| | | | | |
| $ | 4,800 | | | Westlake Automobile Receivables Trust2018-2, 144A | | | 4.000% | | | | 1/16/24 | | | | BBB | | | $ | 4,906,358 | |
| $ | 54,935 | | | Total Asset-Backed Securities (cost $55,156,935) | | | | | | | | | | | | | | | 55,641,961 | |
| | | | Total Long-Term Investments (cost $502,797,481) | | | | | | | | | | | | | | | 508,850,652 | |
| | | | | |
Principal
Amount (000) | | | Description (1) | | Coupon | | | Maturity | | | | | | Value | |
| |
| | | | SHORT-TERM INVESTMENTS – 3.7% (2.6% of Total Investments) | |
| |
| | | | REPURCHASE AGREEMENTS – 3.7% (2.6% of Total Investments) | |
| | | | | |
| $ | 13,837 | | | Repurchase Agreement with Fixed Income Clearing Corporation, dated 6/28/19, repurchase price $13,838,632, collateralized by $13,350,000 U.S. Treasury Notes, 2.625%, due 1/31/26, value $14,118,106 | | | 1.200% | | | | 7/01/19 | | | | | | | $ | 13,837,248 | |
| | | | Total Short-Term Investments (cost $13,837,248) | | | | | | | | | | | | | | | 13,837,248 | |
| | | | Total Investments (cost $516,634,729) – 141.3% | | | | | | | | | | | | | | | 522,687,900 | |
| | | | Borrowings – (39.8)% (4), (5) | | | | | | | | | | | | | | | (147,200,000 | ) |
| | | | Other Assets Less Liabilities – (1.5)% (6) | | | | | | | | | | | | | | | (5,631,090 | ) |
| | | | Net Assets Applicable to Common Shares – 100% | | | | | | | | | | | | | | $ | 369,856,810 | |
Investments in Derivatives
Futures Contracts
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Description | | Contract
Position | | | Number of
Contracts | | | Expiration
Date | | | Notional
Amount | | | Value | | | Unrealized
Appreciation
(Depreciation) | | | Variation
Margin
Receivable/
Payable) | |
U.S. Treasury10-Year Note | | | Short | | | | (374 | ) | | | 9/19 | | | $ | (46,928,956 | ) | | $ | (47,860,312 | ) | | $ | (931,356 | ) | | $ | (11,688 | ) |
For Fund portfolio compliance purposes, the Fund’s industry classifications refer to any one or more of the industrysub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by Fund management. This definition may not apply for purposes of this report, which may combine industrysub-classifications into sectors for reporting ease.
| (1) | All percentages shown in the Portfolio of Investments are based on net assets applicable to common shares unless otherwise noted. |
| (2) | For financial reporting purposes, the ratings disclosed are the highest of Standard & Poor’s Group (“Standard & Poor’s”), Moody’s Investors Service, Inc. (“Moody’s”) or Fitch, Inc. (“Fitch”) rating. This treatment of split-rated securities may differ from that used for other purposes, such as for Fund investment policies. Ratings below BBB by Standard & Poor’s, Baa by Moody’s or BBB by Fitch are considered to be below investment grade. Holdings designated N/R are not rated by any of these national rating agencies. |
| (3) | Variable rate security. The rate shown is the coupon as of the end of the reporting period. |
| (4) | Borrowings as a percentage of Total Investments is 28.2%. |
| (5) | The Fund segregates 100% of its eligible investments (excluding any investments separately pledged as collateral for specific investments in derivatives, when applicable) in the Portfolio of Investments as collateral for borrowings. |
| (6) | Other assets less liabilities includes the unrealized appreciation (depreciation) of certainover-the-counter (“OTC”) derivatives as presented on the Statement of Assets and Liabilities, when applicable. The unrealized appreciation (depreciation) ofOTC-cleared and exchange-traded derivatives is recognized as part of cash collateral at brokers and/or the receivable or payable for variation margin as presented on the Statement of Assets and Liabilities, when applicable. |
| H15T1Y | U.S. Treasury Yield Curve Rate T Note Constant Maturity1-Year. |
| I/O | Interest only security. |
| LIBOR | London Inter-Bank Offered Rate |
| WI/DD | Investment, or portion of investment, purchased on a when-issued or delayed delivery basis. |
| 12MTA | Federal Reserve U.S.12-Month Cumulative Treasury Average1-Year CMT. |
| 144A | Investment is exempt from registration under Rule 144A of the Securities Act of 1933, as amended. These investments may only be resold in transactions exempt from registration, which are normally those transactions with qualified institutional buyers. |
See accompanying notes to financial statements.
22
| | |
| JMT | | Nuveen Mortgage Opportunity
Term Fund 2 Portfolio of Investments June 30, 2019 |
| | | (Unaudited) |
| | | | | | | | | | | | | | | | | | | | |
Principal
Amount (000) | | | Description (1) | | Coupon | | | Maturity | | | Ratings (2) | | | Value | |
| |
| | | | LONG-TERM INVESTMENTS – 139.9% (97.4% of Total Investments) | |
| |
| | | | MORTGAGE-BACKED SECURITIES – 123.1% (85.7% of Total Investments) | |
| | | | | |
| $ | 925 | | | 280 Park Avenue 2017-280P Mortgage Trust, 144A,(1-Month LIBOR reference rate + 2.119% spread), (3) | | | 4.513% | | | | 9/15/34 | | | | BB– | | | $ | 927,317 | |
| | 1,110 | | | Angel Oak Mortgage Trust2019-3, 144A | | | 2.930% | | | | 5/25/59 | | | | AAA | | | | 1,115,582 | |
| | 282 | | | Angel Oak Mortgage Trust I LLC2016-1, 144A | | | 3.500% | | | | 7/25/46 | | | | N/R | | | | 284,441 | |
| | 228 | | | Angel Oak Mortgage Trust I LLC2017-2, 144A | | | 2.478% | | | | 7/25/47 | | | | AAA | | | | 227,002 | |
| | 74 | | | Angel Oak Mortgage Trust LLC, 144A | | | 3.644% | | | | 1/25/47 | | | | AAA | | | | 73,794 | |
| | 429 | | | Arroyo Mortgage Trust2018-1, 144A | | | 3.763% | | | | 4/25/48 | | | | AAA | | | | 439,597 | |
| | 1,032 | | | Arroyo Mortgage Trust2019-1, 144A | | | 3.805% | | | | 1/25/49 | | | | AAA | | | | 1,054,907 | |
| | 220 | | | BAMLL Commercial Mortgage Securities Trust 2018-DSNY, 144A,(1-Month LIBOR reference rate + 1.700% spread), (3) | | | 4.094% | | | | 9/15/34 | | | | BBB– | | | | 220,790 | |
| | 510 | | | BANK 2018-BNK15 | | | 4.804% | | | | 11/15/61 | | | | A– | | | | 557,031 | |
| | 1,357 | | | BCAP LLC Trust2007-AA1,(1-Month LIBOR reference rate + 0.180% spread), (3) | | | 2.584% | | | | 3/25/37 | | | | Caa3 | | | | 1,338,439 | |
| | 743 | | | Bellemeade Re2019-1 Ltd, 144A,(1-Month LIBOR reference rate + 1.300% spread), (3) | | | 3.704% | | | | 3/25/29 | | | | N/R | | | | 742,987 | |
| | 378 | | | Bunker Hill Loan Depositary Trust2019-1, 144A | | | 3.817% | | | | 10/26/48 | | | | AA+ | | | | 384,792 | |
| | 814 | | | ChaseFlex Trust Series2007-2,(1-Month LIBOR reference rate + 0.280% spread), (3) | | | 2.684% | | | | 5/25/37 | | | | B3 | | | | 775,530 | |
| | 813 | | | CHL Mortgage Pass-Through Trust 2006-HYB1 | | | 4.066% | | | | 3/20/36 | | | | Caa3 | | | | 764,288 | |
| | 210 | | | Citigroup Commercial Mortgage Trust 2015-GC29, 144A | | | 3.110% | | | | 4/10/48 | | | | BBB– | | | | 190,963 | |
| | 252 | | | Civic Mortgage LLC, 144A | | | 3.892% | | | | 6/25/22 | | | | N/R | | | | 250,938 | |
| | 355 | | | COLT2018-3 Mortgage Loan Trust, 144A | | | 4.283% | | | | 10/26/48 | | | | BBB | | | | 362,504 | |
| | 975 | | | COLT2019-1 Mortgage Loan Trust, 144A | | | 3.705% | | | | 3/25/49 | | | | AAA | | | | 990,078 | |
| | 190 | | | COMM 2012-CCRE3 Mortgage Trust, 144A | | | 4.911% | | | | 10/15/45 | | | | A– | | | | 189,582 | |
| | 970 | | | COMM 2012-CCRE5 Mortgage Trust, 144A | | | 4.465% | | | | 12/10/45 | | | | Baa3 | | | | 939,118 | |
| | 950 | | | COMM 2013-CCRE9 Mortgage Trust, 144A | | | 4.397% | | | | 7/10/45 | | | | BBB– | | | | 865,349 | |
| | 490 | | | COMM 2019-521F Mortgage Trust, 144A,(1-Month LIBOR reference rate + 0.900% spread), (3) | | | 3.380% | | | | 6/15/34 | | | | AAA | | | | 490,297 | |
| | 285 | | | Connecticut Avenue Securities Trust2018-R07, 144A,(1-Month LIBOR reference rate + 2.400% spread), (3) | | | 4.804% | | | | 4/25/31 | | | | B | | | | 288,420 | |
| | 596 | | | Connecticut Avenue Securities Trust2019-R01, 144A,(1-Month LIBOR reference rate + 0.850% spread), (3) | | | 3.254% | | | | 7/25/31 | | | | BBB– | | | | 597,150 | |
| | 160 | | | Connecticut Avenue Securities Trust2019-R03, 144A,(1-Month LIBOR reference rate + 2.150% spread), (3) | | | 4.554% | | | | 9/25/31 | | | | B+ | | | | 160,882 | |
| | 1,310 | | | Core Industrial Trust 2015-CALW, 144A | | | 3.979% | | | | 2/10/34 | | | | B | | | | 1,333,212 | |
| | 604 | | | Corevest American Finance2019-1 Trust, 144A | | | 3.324% | | | | 3/15/52 | | | | AAA | | | | 626,922 | |
| | 1,150 | | | CSAIL2015-C1 Commercial Mortgage Trust, 144A | | | 3.936% | | | | 4/15/50 | | | | BBB– | | | | 1,082,719 | |
| | 441 | | | CSMC 2018-RPL8 Trust, 144A | | | 4.125% | | | | 7/25/58 | | | | N/R | | | | 447,043 | |
| | 560 | | | Deephaven Residential Mortgage Trust2019-2, 144A | | | 3.558% | | | | 4/25/59 | | | | AAA | | | | 566,320 | |
| | 788 | | | Deephaven Residential Mortgage Trust2018-4, 144A | | | 4.080% | | | | 10/25/58 | | | | AAA | | | | 799,179 | |
| | 623 | | | Eagle RE2018-1 Ltd, 144A,(1-Month LIBOR reference rate + 1.700% spread), (3) | | | 4.104% | | | | 11/25/28 | | | | N/R | | | | 622,999 | |
| | 1,145 | | | Eagle RE2019-1 Ltd, 144A,(1-Month LIBOR reference rate + 1.250% spread), (3) | | | 3.654% | | | | 4/25/29 | | | | N/R | | | | 1,145,702 | |
| | 2,211 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 2.000% spread), (3) | | | 4.404% | | | | 3/25/31 | | | | B | | | | 2,213,773 | |
| | 810 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 2.200% spread), (3) | | | 4.604% | | | | 1/25/30 | | | | B1 | | | | 817,707 | |
| | 1,644 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 2.200% spread), (3) | | | 4.604% | | | | 8/25/30 | | | | B | | | | 1,650,629 | |
| | 1,000 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 2.250% spread), (3) | | | 4.654% | | | | 7/25/30 | | | | B+ | | | | 1,010,574 | |
| | 535 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 2.500% spread), (3) | | | 4.904% | | | | 5/25/30 | | | | B | | | | 544,071 | |
| | 1,235 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 2.550% spread), (3) | | | 4.954% | | | | 12/25/30 | | | | B | | | | 1,254,187 | |
23
| | |
| |
| JMT | | Nuveen Mortgage Opportunity Term Fund 2(continued) |
| | Portfolio of Investments June 30, 2019 |
| | (Unaudited) |
| | | | | | | | | | | | | | | | | | | | |
Principal
Amount (000) | | | Description (1) | | Coupon | | | Maturity | | | Ratings (2) | | | Value | |
| |
| | | | MORTGAGE-BACKED SECURITIES(continued) | |
| | | | | |
| $ | 1,050 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 2.800% spread), (3) | | | 5.204% | | | | 2/25/30 | | | | B | | | $ | 1,081,001 | |
| | 475 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 2.850% spread), (3) | | | 5.254% | | | | 11/25/29 | | | | BB– | | | | 489,419 | |
| | 500 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 3.000% spread), (3) | | | 5.404% | | | | 10/25/29 | | | | Ba2 | | | | 521,832 | |
| | 675 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 3.550% spread), (3) | | | 5.954% | | | | 7/25/29 | | | | BB+ | | | | 714,464 | |
| | 1,075 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 3.650% spread), (3) | | | 6.054% | | | | 9/25/29 | | | | BB– | | | | 1,143,795 | |
| | 1,236 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 4.000% spread), (3) | | | 6.404% | | | | 5/28/30 | | | | N/R | | | | 1,311,645 | |
| | 1,025 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 4.250% spread), (3) | | | 6.654% | | | | 1/25/29 | | | | AAA | | | | 1,100,530 | |
| | 1,200 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 4.250% spread), (3) | | | 6.654% | | | | 4/25/29 | | | | BBB– | | | | 1,289,429 | |
| | 757 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 4.300% spread), (3) | | | 6.704% | | | | 2/25/25 | | | | BBB | | | | 809,680 | |
| | 1,707 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 4.450% spread), (3) | | | 6.854% | | | | 1/25/29 | | |
| BB+
|
| | | 1,817,801 | |
| | 1,000 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 4.450% spread), (3) | | | 6.854% | | | | 2/25/30 | | | | N/R | | | | 1,058,716 | |
| | 670 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 4.450% spread), (3) | | | 6.854% | | | | 5/25/30 | | | | N/R | | | | 713,447 | |
| | 397 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 4.550% spread), (3) | | | 6.954% | | | | 2/25/25 | | | | A | | | | 417,879 | |
| | 309 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 4.900% spread), (3) | | | 7.304% | | | | 11/25/24 | | | | A2 | | | | 341,233 | |
| | 643 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 5.000% spread), (3) | | | 7.404% | | | | 7/25/25 | | | | BBB | | | | 687,394 | |
| | 524 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 5.000% spread), (3) | | | 7.404% | | | | 7/25/25 | | | | BB– | | | | 573,754 | |
| | 1,446 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 5.050% spread), (3) | | | 7.454% | | | | 11/25/29 | | | | N/R | | | | 1,593,853 | |
| | 770 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 5.250% spread), (3) | | | 7.654% | | | | 10/25/23 | | | | A– | | | | 855,477 | |
| | 1,018 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 5.550% spread), (3) | | | 7.954% | | | | 4/25/28 | | | | BBB– | | | | 1,104,999 | |
| | 890 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 5.700% spread), (3) | | | 8.104% | | | | 4/25/28 | | | | BB+ | | | | 987,970 | |
| | 1,622 | | | Fannie Mae Connecticut Avenue Securities,(1-Month LIBOR reference rate + 5.900% spread), (3) | | | 8.304% | | | | 10/25/28 | | | | BBB– | | | | 1,784,688 | |
| | 280 | | | Fannie Mae Connecticut Avenue Securities, 144A,(1-Month LIBOR reference rate + 2.100% spread), (3), (WI/DD) | | | 4.640% | | | | 6/25/39 | | | | N/R | | | | 280,735 | |
| | 497 | | | Fannie Mae REMICS | | | 0.000% | | | | 6/25/36 | | | | N/R | | | | 439,557 | |
| | 554 | | | First Horizon Alternative Mortgage Securities Trust2005-AA7 | | | 4.366% | | | | 9/25/35 | | | | N/R | | | | 535,091 | |
| | 690 | | | First Horizon Alternative Mortgage Securities Trust2006-FA3 | | | 6.000% | | | | 7/25/36 | | | | Ca | | | | 542,974 | |
| | 15,814 | | | Freddie Mac Multifamily Structured Pass Through Certificates, (I/O) | | | 0.420% | | | | 11/25/27 | | | | AAA | | | | 351,963 | |
| | 7,001 | | | Freddie Mac Multifamily Structured Pass Through Certificates, (I/O) | | | 1.714% | | | | 7/25/41 | | | | N/R | | | | 418,748 | |
| | 5,015 | | | Freddie Mac Multifamily Structured Pass Through Certificates, (I/O) | | | 1.781% | | | | 9/25/41 | | | | N/R | | | | 331,051 | |
| | 5,230 | | | Freddie Mac Multifamily Structured Pass Through Certificates, (I/O) | | | 2.568% | | | | 6/25/42 | | | | N/R | | | | 564,800 | |
| | 1,300 | | | Freddie Mac Multifamily Structured Pass Through Certificates, (I/O) | | | 2.910% | | | | 1/25/43 | | | | N/R | | | | 54,903 | |
| | 2,144 | | | Freddie Mac Multifamily Structured Pass Through Certificates, (I/O) | | | 2.182% | | | | 6/25/44 | | | | N/R | | | | 272,820 | |
| | 410 | | | Freddie Mac Stacr Trust 2018-HQA2, 144A,(1-Month LIBOR reference rate + 2.300% spread), (3) | | | 4.730% | | | | 10/25/48 | | | | B+ | | | | 411,787 | |
| | 1,500 | | | Freddie Mac STACR Trust 2019-DNA1, 144A,(1-Month LIBOR reference rate + 0.900% spread), (3) | | | 3.330% | | | | 1/25/49 | | | | BBB+ | | | | 1,503,662 | |
| | 677 | | | Freddie Mac STACR Trust 2019-DNA1, 144A,(1-Month LIBOR reference rate + 2.650% spread), (3) | | | 5.080% | | | | 1/25/49 | | | | B+ | | | | 693,102 | |
| | 345 | | | Freddie Mac Stacr Trust 2019-HQA1, 144A,(1-Month LIBOR reference rate + 2.350% spread), (3) | | | 4.754% | | | | 2/25/49 | | | | B+ | | | | 348,161 | |
| | 280 | | | Freddie Mac STACR Trust 2019-HQA2, 144A,(1-Month LIBOR reference rate + 2.050% spread), (3) | | | 4.454% | | | | 4/25/49 | | | | B+ | | | | 281,305 | |
| | 660 | | | Freddie Mac STACR Trust 2019-HRP1, 144A,(1-Month LIBOR reference rate + 1.400% spread), (3) | | | 3.811% | | | | 2/25/49 | | | | BBB+ | | | | 660,212 | |
24
| | | | | | | | | | | | | | | | | | | | |
Principal
Amount (000) | | | Description (1) | | Coupon | | | Maturity | | | Ratings (2) | | | Value | |
| |
| | | | MORTGAGE-BACKED SECURITIES(continued) | |
| | | | | |
| $ | 1,035 | | | Freddie Mac Structured Agency Credit Risk Debt Notes,(1-Month LIBOR reference rate + 1.350% spread), (3) | | | 3.754% | | | | 3/25/29 | | | | Aaa | | | $ | 1,041,449 | |
| | 1,713 | | | Freddie Mac Structured Agency Credit Risk Debt Notes,(1-Month LIBOR reference rate + 2.300% spread), (3) | | | 4.704% | | | | 9/25/30 | | | | B | | | | 1,719,174 | |
| | 1,675 | | | Freddie Mac Structured Agency Credit Risk Debt Notes,(1-Month LIBOR reference rate + 2.350% spread), (3) | | | 4.754% | | | | 4/25/30 | | | | AAA | | | | 1,701,353 | |
| | 850 | | | Freddie Mac Structured Agency Credit Risk Debt Notes,(1-Month LIBOR reference rate + 2.500% spread), (3) | | | 4.904% | | | | 3/25/30 | | | | BB | | | | 869,066 | |
| | 1,125 | | | Freddie Mac Structured Agency Credit Risk Debt Notes,(1-Month LIBOR reference rate + 2.650% spread), (3) | | | 5.054% | | | | 12/25/29 | | | | BB– | | | | 1,151,665 | |
| | 637 | | | Freddie Mac Structured Agency Credit Risk Debt Notes,(1-Month LIBOR reference rate + 2.900% spread), (3) | | | 5.304% | | | | 7/25/28 | | | | AA+ | | | | 644,687 | |
| | 400 | | | Freddie Mac Structured Agency Credit Risk Debt Notes,(1-Month LIBOR reference rate + 3.450% spread), (3) | | | 5.854% | | | | 10/25/29 | | | | BB+ | | | | 427,706 | |
| | 1,050 | | | Freddie Mac Structured Agency Credit Risk Debt Notes,(1-Month LIBOR reference rate + 3.550% spread), (3) | | | 5.954% | | | | 8/25/29 | | | | Ba2 | | | | 1,120,367 | |
| | 750 | | | Freddie Mac Structured Agency Credit Risk Debt Notes,(1-Month LIBOR reference rate + 3.800% spread), (3) | | | 6.204% | | | | 3/25/29 | | | | BBB– | | | | 797,654 | |
| | 1,000 | | | Freddie Mac Structured Agency Credit Risk Debt Notes,(1-Month LIBOR reference rate + 3.900% spread), (3) | | | 6.304% | | | | 12/25/27 | | | | A1 | | | | 1,053,670 | |
| | 1,275 | | | Freddie Mac Structured Agency Credit Risk Debt Notes,(1-Month LIBOR reference rate + 3.900% spread), (3) | | | 6.304% | | | | 4/25/29 | | | | BB | | | | 1,373,775 | |
| | 961 | | | Freddie Mac Structured Agency Credit Risk Debt Notes,(1-Month LIBOR reference rate + 4.250% spread), (3) | | | 6.654% | | | | 11/25/23 | | | | BBB– | | | | 1,038,038 | |
| | 1,155 | | | Freddie Mac Structured Agency Credit Risk Debt Notes,(1-Month LIBOR reference rate + 4.350% spread), (3) | | | 6.754% | | | | 9/25/30 | | | | N/R | | | | 1,226,832 | |
| | 583 | | | Freddie Mac Structured Agency Credit Risk Debt Notes,(1-Month LIBOR reference rate + 4.750% spread), (3) | | | 7.154% | | | | 10/25/24 | | | | AA– | | | | 622,124 | |
| | 575 | | | Freddie Mac Structured Agency Credit Risk Debt Notes,(1-Month LIBOR reference rate + 5.000% spread), (3) | | | 7.404% | | | | 8/25/29 | | | | N/R | | | | 636,280 | |
| | 1,275 | | | Freddie Mac Structured Agency Credit Risk Debt Notes,(1-Month LIBOR reference rate + 5.150% spread), (3) | | | 7.554% | | | | 11/25/28 | | | | Baa3 | | | | 1,409,745 | |
| | 1,292 | | | Freddie Mac Structured Agency Credit Risk Debt Notes,(1-Month LIBOR reference rate + 5.550% spread), (3) | | | 7.954% | | | | 7/25/28 | | | | A– | | | | 1,463,559 | |
| | 680 | | | Freddie Mac Structured Agency Credit Risk Debt Notes, 144A | | | 3.743% | | | | 2/25/48 | | | | BBB | | | | 684,879 | |
| | 390 | | | FREMF17-K68 Mortgage Trust, 144A | | | 3.976% | | | | 10/25/49 | | | | Baa2 | | | | 386,205 | |
| | 225 | | | FREMF2014-K37 Mortgage Trust, 144A | | | 4.714% | | | | 1/25/47 | | | | AA– | | | | 238,346 | |
| | 935 | | | FREMF2015-K44 Mortgage Trust, 144A | | | 3.807% | | | | 1/25/48 | | | | BBB– | | | | 938,317 | |
| | 1,196 | | | FREMF 2015-K720 Mortgage Trust, 144A | | | 3.506% | | | | 7/25/22 | | | | Baa3 | | | | 1,196,577 | |
| | 1,293 | | | FREMF 2016-K504 Mortgage Trust, 144A | | | 3.138% | | | | 9/25/20 | | | | N/R | | | | 1,296,025 | |
| | 373 | | | FREMF2016-K54 Mortgage Trust, 144A | | | 4.189% | | | | 4/25/48 | | | | BBB– | | | | 377,679 | |
| | 270 | | | FREMF 2016-K722 Mortgage Trust, 144A | | | 3.971% | | | | 7/25/49 | | | | BBB– | | | | 272,966 | |
| | 515 | | | FREMF 2017-K725 Mortgage Trust, 144A | | | 4.012% | | | | 2/25/50 | | | | BBB | | | | 523,119 | |
| | 265 | | | FREMF 2017-K728 Mortgage Trust, 144A | | | 3.764% | | | | 11/25/50 | | | | BBB– | | | | 264,513 | |
| | 965 | | | FREMF 2017-KT01 Multifamily Aggregation Risk Transfer Trust, 144A | | | 4.566% | | | | 2/25/20 | | | | N/R | | | | 964,025 | |
| | 265 | | | FREMF 2018-K730 Mortgage Trust, 144A | | | 3.926% | | | | 2/25/50 | | | | BBB | | | | 266,260 | |
| | 675 | | | FREMF 2018-K732 Mortgage Trust, 144A | | | 4.194% | | | | 5/25/25 | | | | Baa3 | | | | 685,629 | |
| | 340 | | | FREMF 2018-K733 Mortgage Trust, 144A | | | 4.218% | | | | 9/25/25 | | | | Baa1 | | | | 357,728 | |
| | 467 | | | GCAT2018-1 LLC, 144A | | | 3.844% | | | | 6/25/48 | | | | N/R | | | | 469,701 | |
| | 1,084 | | | GCAT 2019-NQM1 LLC, 144A | | | 2.985% | | | | 2/25/59 | | | | AAA | | | | 1,088,908 | |
| | 670 | | | General Electric Co, 144A,(1-Month LIBOR reference rate + 2.250% spread), (3) | | | 4.644% | | | | 9/15/31 | | | | AA– | | | | 670,738 | |
| | 589 | | | GMACM Mortgage Loan Trust2005-AF2 | | | 6.000% | | | | 12/25/35 | | | | N/R | | | | 579,222 | |
| | 404 | | | GMACM Mortgage Loan Trust2006-AR1 | | | 4.210% | | | | 4/19/36 | | | | N/R | | | | 367,534 | |
| | 100 | | | Government National Mortgage Association | | | 3.000% | | | | 1/20/40 | | | | N/R | | | | 103,220 | |
| | 106 | | | Government National Mortgage Association | | | 3.000% | | | | 2/16/40 | | | | N/R | | | | 109,266 | |
| | 525 | | | Government National Mortgage Association | | | 3.000% | | | | 11/20/41 | | | | N/R | | | | 538,433 | |
| | 465 | | | Government National Mortgage Association | | | 2.500% | | | | 9/20/42 | | | | N/R | | | | 433,449 | |
| | 205 | | | Government National Mortgage Association | | | 3.500% | | | | 8/16/43 | | | | N/R | | | | 217,718 | |
| | 250 | | | Government National Mortgage Association | | | 3.000% | | | | 3/20/44 | | | | N/R | | | | 254,429 | |
| | 750 | | | Government National Mortgage Association | | | 3.500% | | | | 8/20/44 | | | | N/R | | | | 802,001 | |
| | 750 | | | Government National Mortgage Association | | | 3.000% | | | | 9/20/44 | | | | N/R | | | | 769,227 | |
| | 2,556 | | | Government National Mortgage Association, (I/O) | | | 3.000% | | | | 12/16/27 | | | | N/R | | | | 215,997 | |
| | 214 | | | Government National Mortgage Association, (I/O) | | | 4.500% | | | | 10/20/39 | | | | N/R | | | | 17,366 | |
25
| | |
| |
| JMT | | Nuveen Mortgage Opportunity Term Fund 2(continued) |
| | Portfolio of Investments June 30, 2019 |
| | (Unaudited) |
| | | | | | | | | | | | | | | | | | | | |
Principal
Amount (000) | | | Description (1) | | Coupon | | | Maturity | | | Ratings (2) | | | Value | |
| |
| | | | MORTGAGE-BACKED SECURITIES(continued) | |
| | | | | |
| $ | 375 | | | GS Mortgage Securities Corp Trust 2017-500K, 144A,(1-Month LIBOR reference rate + 1.800% spread), (3) | | | 4.194% | | | | 7/15/32 | | | | N/R | | | $ | 373,364 | |
| | 701 | | | GS Mortgage Securities Trust2017-GS5, 144A | | | 3.509% | | | | 3/10/50 | | | | BBB– | | | | 646,654 | |
| | 775 | | | GS Mortgage Securities Trust2017-GS6, 144A | | | 3.243% | | | | 5/10/50 | | | | BBB– | | | | 665,894 | |
| | 833 | | | GSAA Home Equity Trust2007-8,(1-Month LIBOR reference rate + 0.450% spread), (3) | | | 2.854% | | | | 8/25/37 | | | | B1 | | | | 810,869 | |
| | 465 | | | Home Re2018-1 Ltd, 144A,(1-Month LIBOR reference rate + 1.600% spread), (3) | | | 4.030% | | | | 10/25/28 | | | | N/R | | | | 464,218 | |
| | 398 | | | IndyMac INDA Mortgage Loan Trust2007-AR3 | | | 3.686% | | | | 7/25/37 | | | | N/R | | | | 368,776 | |
| | 743 | | | IndyMac INDX Mortgage Loan Trust 2005-AR11 | | | 3.926% | | | | 8/25/35 | | | | Caa3 | | | | 671,227 | |
| | 451 | | | IndyMac INDX Mortgage Loan Trust2006-AR3 | | | 3.422% | | | | 3/25/36 | | | | Ca | | | | 417,515 | |
| | 595 | | | IndyMac INDX Mortgage Loan Trust2007-AR5 | | | 3.844% | | | | 5/25/37 | | | | Ca | | | | 566,296 | |
| | 505 | | | JP Morgan Chase Commercial Mortgage Securities Trust2011-C5, 144A | | | 5.554% | | | | 8/15/46 | | | | Baa3 | | | | 513,044 | |
| | 467 | | | JP Morgan Mortgage Trust2006-A6 | | | 4.415% | | | | 10/25/36 | | | | N/R | | | | 433,940 | |
| | 805 | | | LSTAR Securities Investment Ltd2019-3, 144A,(1-Month LIBOR reference rate + 1.500% spread), (3) | | | 3.940% | | | | 4/01/24 | | | | N/R | | | | 804,592 | |
| | 1,084 | | | LSTAR Securities Investment Ltd2019-4, 144A,(1-Month LIBOR reference rate + 1.500% spread), (3) | | | 3.940% | | | | 5/01/24 | | | | N/R | | | | 1,084,763 | |
| | 603 | | | LSTAR Securities Investment Trust2019-1, 144A,(1-Month LIBOR reference rate + 1.700% spread), (3) | | | 4.140% | | | | 3/01/24 | | | | N/R | | | | 604,657 | |
| | 343 | | | LSTAR Securities Investment Trust2019-2, 144A,(1-Month LIBOR reference rate + 1.500% spread), (3) | | | 3.940% | | | | 4/01/24 | | | | N/R | | | | 342,762 | |
| | 637 | | | Merrill Lynch Mortgage Backed Securities Trust Series2007-2, (H15T1Y reference rate + 2.400% spread), (3) | | | 4.690% | | | | 8/25/36 | | | | Caa2 | | | | 631,788 | |
| | 655 | | | Merrill Lynch Mortgage Backed Securities Trust Series2007-3 | | | 4.302% | | | | 6/25/37 | | | | N/R | | | | 533,947 | |
| | 931 | | | MFA 2017-NPL1 LLC, 144A | | | 3.352% | | | | 11/25/47 | | | | N/R | | | | 926,411 | |
| | 274 | | | Mill City Mortgage Loan Trust2018-1, 144A | | | 3.250% | | | | 5/25/62 | | | | AAA | | | | 278,164 | |
| | 631 | | | Mill City Mortgage Loan Trust2018-3, 144A | | | 3.500% | | | | 8/25/58 | | | | Aaa | | | | 647,607 | |
| | 275 | | | Morgan Stanley Capital I Trust2017-CLS, 144A,(1-Month LIBOR reference rate + 1.950% spread), (3) | | | 4.344% | | | | 11/15/34 | | | | Ba3 | | | | 273,592 | |
| | 1,525 | | | Morgan Stanley Capital I Trust2017-CLS, 144A,(1-Month LIBOR reference rate + 2.600% spread), (3) | | | 4.994% | | | | 11/15/34 | | | | B3 | | | | 1,518,239 | |
| | 1,018 | | | Morgan Stanley Mortgage Loan Trust2007-13 | | | 6.000% | | | | 10/25/37 | | | | D | | | | 829,434 | |
| | 1,480 | | | MSSG Trust 2017-237P, 144A | | | 3.865% | | | | 9/13/39 | | | | BB– | | | | 1,458,955 | |
| | 285 | | | Nationstar HECM Loan Trust2019-1, 144A, (4) | | | 2.651% | | | | 6/25/29 | | | | Aaa | | | | 285,000 | |
| | 121 | | | New Residential Mortgage Loan Trust2016-3, 144A | | | 3.250% | | | | 9/25/56 | | | | Aaa | | | | 123,208 | |
| | 587 | | | New Residential Mortgage Loan Trust2018-4, 144A,(1-Month LIBOR reference rate + 0.900% spread), (3) | | | 3.304% | | | | 1/25/48 | | | | Aaa | | | | 585,866 | |
| | 1,100 | | | New Residential Mortgage Loan Trust 2019-NQM3, 144A | | | 2.802% | | | | 7/25/49 | | | | AAA | | | | 1,101,771 | |
| | 173 | | | Oak Hill Advisors Residential Loan Trust 2017-NPLA, 144A | | | 3.000% | | | | 6/25/57 | | | | N/R | | | | 172,787 | |
| | 723 | | | PMT Credit Risk Transfer Trust2019-1R, 144A,(1-Month LIBOR reference rate + 2.000% spread), (3) | | | 4.429% | | | | 3/27/24 | | | | N/R | | | | 723,230 | |
| | 475 | | | Pretium Mortgage Credit Partners I 2018-NPL4 LLC, 144A | | | 4.826% | | | | 9/25/58 | | | | N/R | | | | 480,952 | |
| | 493 | | | Pretium Mortgage Credit Partners I 2019-NPL1 LLC, 144A | | | 4.213% | | | | 7/25/60 | | | | N/R | | | | 500,119 | |
| | 920 | | | Progress Residential 2019-SFR2 Trust, 144A | | | 3.147% | | | | 5/17/36 | | | | Aaa | | | | 935,701 | |
| | 570 | | | PRPM2018-2 LLC, 144A | | | 4.000% | | | | 8/25/23 | | | | N/R | | | | 575,052 | |
| | 948 | | | PRPM2018-3 LLC, 144A | | | 4.483% | | | | 10/25/23 | | | | N/R | | | | 962,276 | |
| | 654 | | | PRPM2019-2 LLC, 144A | | | 3.967% | | | | 4/25/24 | | | | N/R | | | | 663,022 | |
| | 509 | | | Radnor RE2019-1 Ltd, 144A,(1-Month LIBOR reference rate + 1.250% spread), (3) | | | 3.654% | | | | 2/25/29 | | | | N/R | | | | 510,047 | |
| | 759 | | | RALI Series2007-QS2 Trust | | | 6.250% | | | | 1/25/37 | | | | Caa3 | | | | 703,514 | |
| | 1,977 | | | RAMP Series2006-NC2 Trust,(1-Month LIBOR reference rate + 0.290% spread), (3) | | | 2.694% | | | | 2/25/36 | | | | Aaa | | | | 1,974,298 | |
| | 718 | | | Sequoia Mortgage Trust2007-1 | | | 4.335% | | | | 2/20/47 | | | | N/R | | | | 672,188 | |
| | 550 | | | Spruce Hill Mortgage Loan Trust2019-SH1, 144A | | | 3.395% | | | | 4/29/49 | | | | AAA | | | | 555,007 | |
| | 1,273 | | | STACR Trust 2018-HRP1, 144A,(1-Month LIBOR reference rate + 1.650% spread), (3) | | | 4.054% | | | | 4/25/43 | | | | BB– | | | | 1,278,150 | |
| | 70 | | | STACR Trust 2018-HRP1, 144A,(1-Month LIBOR reference rate + 3.750% spread), (3) | | | 6.154% | | | | 4/25/43 | | | | N/R | | | | 71,948 | |
| | 465 | | | STACR Trust 2018-HRP2, 144A,(1-Month LIBOR reference rate + 1.250% spread), (3) | | | 3.654% | | | | 2/25/47 | | | | A | | | | 467,042 | |
| | 1,372 | | | Structured Adjustable Rate Mortgage Loan Trust Series2007-6,(1-Month LIBOR reference rate + 0.190% spread), (3) | | | 2.594% | | | | 7/25/37 | | | | B2 | | | | 1,342,594 | |
| | 268 | | | Towd Point Mortgage Trust2018-5, 144A | | | 3.250% | | | | 7/25/58 | | | | AAA | | | | 273,873 | |
26
| | | | | | | | | | | | | | | | | | | | |
Principal
Amount (000) | | | Description (1) | | Coupon | | | Maturity | | | Ratings (2) | | | Value | |
| |
| | | | MORTGAGE-BACKED SECURITIES(continued) | |
| | | | | |
| $ | 736 | | | Towd Point Mortgage Trust2019-1, 144A | | | 3.750% | | | | 3/25/58 | | | | AAA | | | $ | 768,133 | |
| | 340 | | | Towd Point Mortgage Trust2019-SJ1, 144A | | | 3.750% | | | | 11/25/58 | | | | AAA | | | | 343,933 | |
| | 1,650 | | | Towd Point Mortgage Trust2019-SJ2, 144A | | | 4.250% | | | | 11/25/58 | | | | AA | | | | 1,699,262 | |
| | 184 | | | Towd Point Mortgage Trust, 144A | | | 3.750% | | | | 5/25/58 | | | | AAA | | | | 190,911 | |
| | 624 | | | Vericrest Opportunity Loan Trust 2019-NPL2, 144A | | | 3.967% | | | | 2/25/49 | | | | N/R | | | | 630,051 | |
| | 279 | | | Vericrest Opportunity Loan Trust 2019-NPL3, 144A | | | 3.967% | | | | 3/25/49 | | | | N/R | | | | 281,128 | |
| | 541 | | | Verus Securitization Trust2019-2, 144A | | | 3.211% | | | | 4/25/59 | | | | AAA | | | | 545,660 | |
| | 675 | | | VNDO 2012-6AVE Mortgage Trust, 144A | | | 3.448% | | | | 11/15/30 | | | | A– | | | | 685,661 | |
| | 152 | | | VOLT LXII LLC, 144A | | | 3.125% | | | | 9/25/47 | | | | N/R | | | | 152,508 | |
| | 1,020 | | | VOLT LXIV LLC, 144A | | | 4.625% | | | | 10/25/47 | | | | N/R | | | | 1,018,137 | |
| | 999 | | | VOLT LXXII LLC, 144A | | | 4.213% | | | | 10/26/48 | | | | N/R | | | | 1,005,064 | |
| | 920 | | | VOLT LXXIII LLC, 144A | | | 4.458% | | | | 10/25/48 | | | | N/R | | | | 928,079 | |
| | 745 | | | VOLT LXXIV LLC, 144A | | | 4.581% | | | | 11/25/48 | | | | N/R | | | | 755,833 | |
| | 328 | | | WaMu Mortgage Pass-Through Certificates Series 2006-AR18 Trust | | | 3.460% | | | | 1/25/37 | | | | N/R | | | | 303,082 | |
| | 464 | | | WaMu Mortgage Pass-Through Certificates Series2006-AR7 Trust, (12MTA reference rate + 0.980% spread), (3) | | | 3.461% | | | | 7/25/46 | | | | Caa3 | | | | 446,873 | |
| | 690 | | | Wells Fargo Commercial Mortgage Trust 2015-LC22 | | | 4.695% | | | | 9/15/58 | | | | BBB– | | | | 674,149 | |
| | 1,100 | | | Wells Fargo Commercial Mortgage Trust2016-C33 | | | 3.426% | | | | 3/15/59 | | | | Aaa | | | | 1,152,510 | |
| | 650 | | | Wells Fargo Commercial Mortgage Trust2017-C39 | | | 4.118% | | | | 9/15/50 | | | | A– | | | | 659,536 | |
| | 989 | | | Wells Fargo Mortgage Backed Securities2019-1 Trust, 144A | | | 4.000% | | | | 11/25/48 | | | | AAA | | | | 1,011,196 | |
| | 515 | | | WFRBS Commercial Mortgage Trust2012-C8, 144A | | | 5.053% | | | | 8/15/45 | | | | Baa3 | | | | 516,091 | |
| | 730 | | | WFRBS Commercial Mortgage Trust2014-C20, 144A | | | 3.986% | | | | 5/15/47 | | | | N/R | | | | 588,964 | |
| $ | 170,573 | | | Total Mortgage-Backed Securities (cost $133,432,048) | | | | | | | | | | | | | | | 135,004,427 | |
| | | | | |
Principal
Amount (000) | | | Description (1) | | Coupon | | | Maturity | | | Ratings (2) | | | Value | |
| |
| | | | ASSET-BACKED SECURITIES – 16.8% (11.7% of Total Investments) | |
| | | | | |
| $ | 681 | | | AASET2018-2 US Ltd, 144A | | | 4.454% | | | | 11/18/38 | | | | A | | | $ | 695,715 | |
| | 465 | | | ALM VII R Ltd, 144A,(3-Month LIBOR reference rate + 4.040% spread), (3) | | | 6.637% | | | | 10/15/28 | | | | Baa3 | | | | 465,042 | |
| | 780 | | | Atlas Senior Loan Fund IX Ltd, 144A,(3-Month LIBOR reference rate + 2.550% spread), (3) | | | 5.311% | | | | 4/20/28 | | | | BBB– | | | | 752,789 | |
| | 108 | | | Avant Loans Funding Trust2017-B, 144A | | | 3.380% | | | | 4/15/21 | | | | N/R | | | | 107,710 | |
| | 400 | | | Avery Point V CLO Ltd, 144A,(3-Month LIBOR reference rate + 3.100% spread), (3) | | | 5.688% | | | | 7/17/26 | | | | Baa3 | | | | 400,034 | |
| | 370 | | | Avis Budget Rental Car Funding AESOP LLC, 144A | | | 3.450% | | | | 3/20/23 | | | | Aaa | | | | 378,892 | |
| | 680 | | | Bowman Park CLO Ltd, 144A,(3-Month LIBOR reference rate + 3.350% spread), (3) | | | 5.874% | | | | 11/23/25 | | | | BBB– | | | | 680,396 | |
| | 410 | | | DB Master Finance LLC, 144A | | | 3.787% | | | | 5/20/49 | | | | BBB | | | | 418,741 | |
| | 1,115 | | | Domino’s Pizza Master Issuer LLC, 144A | | | 3.082% | | | | 7/25/47 | | | | BBB+ | | | | 1,116,821 | |
| | 1,135 | | | Drive Auto Receivables Trust2017-3, 144A | | | 3.530% | | | | 12/15/23 | | | | Aaa | | | | 1,147,080 | |
| | 1,050 | | | GM Financial Automobile Leasing Trust2019-1 | | | 3.950% | | | | 5/22/23 | | | | A– | | | | 1,073,560 | |
| | 1,209 | | | Hertz Vehicle Financing II LP, 144A | | | 3.710% | | | | 3/25/23 | | | | Aaa | | | | 1,240,633 | |
| | 885 | | | Hertz Vehicle Financing II LP, 144A | | | 3.420% | | | | 5/25/25 | | | | Aaa | | | | 903,946 | |
| | 500 | | | Madison Park Funding XIX Ltd, 144A,(3-Month LIBOR reference rate + 1.750% spread), (3) | | | 4.270% | | | | 1/22/28 | | | | Aa2 | | | | 499,993 | |
| | 270 | | | Octagon Investment Partners XIX Ltd, 144A,(3-Month LIBOR reference rate + 3.500% spread), (3) | | | 6.097% | | | | 4/15/26 | | | | A3 | | | | 270,386 | |
| | 1,005 | | | OneMain Direct Auto Receivables Trust2018-1, 144A | | | 3.850% | | | | 10/14/25 | | | | A | | | | 1,027,709 | |
| | 1,196 | | | Prestige Auto Receivables Trust2016-2, 144A | | | 3.910% | | | | 11/15/22 | | | | BBB+ | | | | 1,212,196 | |
| | 56 | | | Prosper Marketplace Issuance Trust Series2017-1, 144A | | | 3.480% | | | | 9/15/23 | | | | BBB– | | | | 55,849 | |
| | 1,600 | | | Sofi Consumer Loan Program2016-3 LLC, 144A | | | 4.490% | | | | 12/26/25 | | | | N/R | | | | 1,642,963 | |
| | 114 | | | Sonic Capital LLC, 144A | | | 4.026% | | | | 2/20/48 | | | | BBB | | | | 117,497 | |
| | 335 | | | Toyota Auto Loan Extended Note Trust2019-1, 144A | | | 2.560% | | | | 11/25/31 | | | | AAA | | | | 338,758 | |
| | 445 | | | United Auto Credit Securitization Trust2017-1, 144A | | | 5.090% | | | | 3/10/23 | | | | BBB– | | | | 448,602 | |
| | 252 | | | Vantage Data Centers Issuer LLC, 144A | | | 4.072% | | | | 2/16/43 | | | | A– | | | | 258,505 | |
| | 650 | | | Westlake Automobile Receivables Trust2017-1, 144A | | | 5.050% | | | | 8/15/24 | | | | BBB– | | | | 661,714 | |
| | 1,065 | | | Westlake Automobile Receivables Trust2017-2, 144A | | | 3.280% | | | | 12/15/22 | | | | AA– | | | | 1,074,952 | |
| | 1,450 | | | Westlake Automobile Receivables Trust2018-2, 144A | | | 4.000% | | | | 1/16/24 | | | | BBB | | | | 1,482,129 | |
| $ | 18,226 | | | Total Asset-Backed Securities (cost $18,294,454) | | | | | | | | | | | | | | | 18,472,612 | |
| | | | Total Long-Term Investments (cost $151,726,502) | | | | | | | | | | | | | | | 153,477,039 | |
27
| | |
| |
| JMT | | Nuveen Mortgage Opportunity Term Fund 2(continued) |
| | Portfolio of Investments June 30, 2019 |
| | (Unaudited) |
| | | | | | | | | | | | | | | | | | | | |
| | | | | |
Principal
Amount (000) | | | Description (1) | | Coupon | | | Maturity | | | | | | Value | |
| |
| | | | SHORT-TERM INVESTMENTS – 3.8% (2.6% of Total Investments) | |
| |
| | | | REPURCHASE AGREEMENTS – 3.8% (2.6% of Total Investments) | |
| | | | | |
| $ | 4,167 | | | Repurchase Agreement with Fixed Income Clearing Corporation, dated 6/28/19, repurchase price $4,167,051, collateralized by $4,020,000 U.S. Treasury Notes, 2.625%, due 1/31/26, value $4,251,295 | | | 1.200% | | | | 7/01/19 | | | | | | | $ | 4,166,634 | |
| | | | Total Short-Term Investments (cost $4,166,634) | | | | | | | | | | | | | | | 4,166,634 | |
| | | | Total Investments (cost $155,893,136) – 143.7% | | | | | | | | | | | | | | | 157,643,673 | |
| | | | Borrowings – (42.1)% (5), (6) | | | | | | | | | | | | | | | (46,200,000 | ) |
| | | | Other Assets Less Liabilities – (1.6)% (7) | | | | | | | | | | | | | | | (1,752,429 | ) |
| | | | Net Assets Applicable to Common Shares – 100% | | | | | | | | | | | | | | $ | 109,691,244 | |
Investments in Derivatives
Futures Contracts
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Description | | Contract
Position | | | Number of
Contracts | | | Expiration
Date | | | Notional
Amount | | | Value | | | Unrealized
Appreciation
(Depreciation) | | | Variation
Margin
Receivable/
Payable) | |
U.S. Treasury10-Year Note | | | Short | | | | (111 | ) | | | 9/19 | | | $ | (13,928,088 | ) | | $ | (14,204,531 | ) | | $ | (276,443 | ) | | $ | (3,469 | ) |
For Fund portfolio compliance purposes, the Fund’s industry classifications refer to any one or more of the industrysub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by Fund management. This definition may not apply for purposes of this report, which may combine industrysub-classifications into sectors for reporting ease.
| (1) | All percentages shown in the Portfolio of Investments are based on net assets applicable to common shares unless otherwise noted. |
| (2) | For financial reporting purposes, the ratings disclosed are the highest of Standard & Poor’s Group (“Standard & Poor’s”), Moody’s Investors Service, Inc. (“Moody’s”) or Fitch, Inc. (“Fitch”) rating. This treatment of split-rated securities may differ from that used for other purposes, such as for Fund investment policies. Ratings below BBB by Standard & Poor’s, Baa by Moody’s or BBB by Fitch are considered to be below investment grade. Holdings designated N/R are not rated by any of these national rating agencies. |
| (3) | Variable rate security. The rate shown is the coupon as of the end of the reporting period. |
| (4) | Investment valued at fair value using methods determined in good faith by, or at the discretion of, the Board. For fair value measurement disclosure purposes, investment classified as Level 3. See Notes to Financial Statements, Note 2 – Investment Valuation and Fair Value Measurements for more information. |
| (5) | Borrowings as a percentage of Total Investments is 29.3%. |
| (6) | The Fund segregates 100% of its eligible investments (excluding any investments separately pledged as collateral for specific investments in derivatives, when applicable) in the Portfolio of Investments as collateral for borrowings. |
| (7) | Other assets less liabilities includes the unrealized appreciation (depreciation) of certainover-the-counter (“OTC”) derivatives as presented on the Statement of Assets and Liabilities, when applicable. The unrealized appreciation (depreciation) ofOTC-cleared and exchange-traded derivatives is recognized as part of cash collateral at brokers and/or the receivable or payable for variation margin as presented on the Statement of Assets and Liabilities, when applicable. |
| H15T1Y | U.S. Treasury Yield Curve Rate T Note Constant Maturity1-Year. |
| I/O | Interest only security. |
| LIBOR | London Inter-Bank Offered Rate |
| WI/DD | Investment, or portion of investment, purchased on a when-issued or delayed delivery basis. |
| 12MTA | Federal Reserve U.S.12-Month Cumulative Treasury Average1-Year CMT. |
| 144A | Investment is exempt from registration under Rule 144A of the Securities Act of 1933, as amended. These investments may only be resold in transactions exempt from registration, which are normally those transactions with qualified institutional buyers. |
See accompanying notes to financial statements.
28
Statement of Assets and Liabilities
June 30, 2019
(Unaudited)
| | | | | | | | |
| | | JLS | | | JMT | |
Assets | | | | | | | | |
Long-term investments, at value (cost $502,797,481 and $151,726,502, respectively) | | $ | 508,850,652 | | | $ | 153,477,039 | |
Short-term investments, at value (cost approximates value) | | | 13,837,248 | | | | 4,166,634 | |
Cash collateral at brokers for investments in futures contracts | | | 391,918 | | | | 116,309 | |
Receivable for interest | | | 1,180,409 | | | | 359,001 | |
Other assets | | | 49,752 | | | | 4,694 | |
Total assets | | | 524,309,979 | | | | 158,123,677 | |
Liabilities | | | | | | | | |
Cash overdraft | | | 3,446,795 | | | | 1,030,289 | |
Borrowings | | | 147,200,000 | | | | 46,200,000 | |
Payable for: | | | | | | | | |
Dividends | | | 1,788,666 | | | | 531,841 | |
Investments purchased | | | 940,000 | | | | 280,000 | |
Variation margin on futures contracts | | | 11,688 | | | | 3,469 | |
Accrued expenses: | | | | | | | | |
Interest on borrowings | | | 405,853 | | | | 127,381 | |
Management fees | | | 462,889 | | | | 141,665 | |
Trustees fees | | | 47,503 | | | | 916 | |
Other | | | 149,775 | | | | 116,872 | |
Total liabilities | | | 154,453,169 | | | | 48,432,433 | |
Net assets applicable to common shares | | $ | 369,856,810 | | | $ | 109,691,244 | |
Common shares outstanding | | | 15,888,994 | | | | 4,877,542 | |
Net asset value (“NAV”) per common share outstanding | | $ | 23.28 | | | $ | 22.49 | |
Net assets applicable to common shares consist of: | | | | | | | | |
Common shares, $0.01 par value per share | | $ | 158,890 | | | $ | 48,775 | |
Paid-in surplus | | | 371,208,455 | | | | 110,317,196 | |
Total distributable earnings | | | (1,510,535 | ) | | | (674,727 | ) |
Net assets applicable to common shares | | $ | 369,856,810 | | | $ | 109,691,244 | |
Authorized common shares: | | | Unlimited | | | | Unlimited | |
See accompanying notes to financial statements.
29
Statement of Operations
Six Months Ended June 30, 2019
(Unaudited)
| | | | | | | | |
| | | JLS | | | JMT | |
Investment Income | | $ | 11,688,144 | | | $ | 3,545,739 | |
Expenses | | | | | | | | |
Management fees | | | 2,793,095 | | | | 854,829 | |
Interest expense | | | 2,653,959 | | | | 832,968 | |
Custodian fees | | | 43,124 | | | | 16,547 | |
Trustees fees | | | 7,827 | | | | 2,356 | |
Professional fees | | | 68,277 | | | | 64,972 | |
Shareholder reporting expenses | | | 17,272 | | | | 6,762 | |
Shareholder servicing agent fees | | | 64 | | | | 146 | |
Stock exchange listing fees | | | 3,405 | | | | 3,412 | |
Investor relations expense | | | 43,283 | | | | 10,702 | |
Other | | | 13,033 | | | | 11,331 | |
Total expenses | | | 5,643,339 | | | | 1,804,025 | |
Net investment income (loss) | | | 6,044,805 | | | | 1,741,714 | |
Realized and Unrealized Gain (Loss) | | | | | | | | |
Net realized gain (loss) from: | | | | | | | | |
Investments | | | (7,148,696 | ) | | | (2,302,849 | ) |
Futures contracts | | | (765,021 | ) | | | (226,167 | ) |
Change in net unrealized appreciation (depreciation) of: | | | | | | | | |
Investments | | | 17,352,551 | | | | 5,333,209 | |
Futures contracts | | | (616,705 | ) | | | (184,100 | ) |
Net realized and unrealized gain (loss) | | | 8,822,129 | | | | 2,620,093 | |
Net increase (decrease) in net assets from operations | | $ | 14,866,934 | | | $ | 4,361,807 | |
See accompanying notes to financial statements.
30
Statement of Changes in Net Assets
(Unaudited)
| | | | | | | | | | | | | | | | |
| | | JLS | | | JMT | |
| | | Six Months
Ended
6/30/19 | | | Year
Ended
12/31/18 | | | Six Months
Ended
6/30/19 | | | Year
Ended
12/31/18 | |
Operations | | | | | | | | | | | | | | | | |
Net investment income (loss) | | $ | 6,044,805 | | | $ | 18,430,143 | | | $ | 1,741,714 | | | $ | 5,403,387 | |
Net realized gain (loss) from: | | | | | | | | | | | | | | | | |
Investments | | | (7,148,696 | ) | | | 8,517,764 | | | | (2,302,849 | ) | | | 2,694,693 | |
Futures contracts | | | (765,021 | ) | | | 135,691 | | | | (226,167 | ) | | | 40,080 | |
Change in net unrealized appreciation (depreciation) of: | | | | | | | | | | | | | | | | |
Investments | | | 17,352,551 | | | | (20,380,068 | ) | | | 5,333,209 | | | | (6,371,304 | ) |
Futures contracts | | | (616,705 | ) | | | (314,651 | ) | | | (184,100 | ) | | | (92,343 | ) |
Net increase (decrease) in net assets applicable to common shares from operations | | | 14,866,934 | | | | 6,388,879 | | | | 4,361,807 | | | | 1,674,513 | |
Distributions to Common Shareholders | | | | | | | | | | | | | | | | |
Dividends | | | (10,820,405 | ) | | | (31,968,876 | ) | | | (3,291,691 | ) | | | (9,126,087 | ) |
Return of capital | | | — | | | | (1,076,333 | ) | | | — | | | | (400,182 | ) |
Decrease in net assets applicable to common shares from distributions to common shareholders | | | (10,820,405 | ) | | | (33,045,209 | ) | | | (3,291,691 | ) | | | (9,526,269 | ) |
Capital Share Transactions | | | | | | | | | | | | | | | | |
Common shares: | | | | | | | | | | | | | | | | |
Net proceeds from shares issued to shareholders due to reinvestment of distributions | | | — | | | | 13,878 | | | | 139,931 | | | | — | |
Net increase (decrease) in net assets applicable to common shares from capital share transactions | | | — | | | | 13,878 | | | | 139,931 | | | | — | |
Net increase (decrease) in net assets applicable to common shares | | | 4,046,529 | | | | (26,642,452 | ) | | | 1,210,047 | | | | (7,851,756 | ) |
Net assets applicable to common shares at the beginning of period | | | 365,810,281 | | | | 392,452,733 | | | | 108,481,197 | | | | 116,332,953 | |
Net assets applicable to common shares at the end of period | | $ | 369,856,810 | | | $ | 365,810,281 | | | $ | 109,691,244 | | | $ | 108,481,197 | |
See accompanying notes to financial statements.
31
Statement of Cash Flows
Six Months Ended June 30, 2019
(Unaudited)
| | | | | | | | |
| | | JLS | | | JMT | |
Cash Flows from Operating Activities: | | | | | | | | |
Net Increase (Decrease) In Net Assets Applicable to Common Shares from Operations | | $ | 14,866,934 | | | $ | 4,361,807 | |
Adjustments to reconcile the net increase (decrease) in net assets applicable to common shares from operations to net cash provided by (used in) operating activities: | | | | | | | | |
Purchases of investments | | | (150,932,642 | ) | | | (45,484,723 | ) |
Proceeds from sales and maturities of investments | | | 150,892,761 | | | | 42,889,450 | |
Proceeds from (Purchases of) short-term investments, net | | | (1,388,996 | ) | | | 2,216,745 | |
Amortization (Accretion) of premiums and discounts, net | | | 22,974 | | | | (5,154 | ) |
(Increase) Decrease in: | | | | | | | | |
Receivable for interest | | | 384,234 | | | | 114,827 | |
Other assets | | | 1,551 | | | | (3,430 | ) |
Increase (Decrease) in: | | | | | | | | |
Payable for investments purchased | | | 940,000 | | | | 280,000 | |
Payable for variation margin on futures contracts | | | (30,890 | ) | | | (9,031 | ) |
Accrued management fees | | | (23,411 | ) | | | (6,817 | ) |
Accrued interest on borrowings | | | (6,990 | ) | | | (2,193 | ) |
Accrued Trustees fees | | | (4,424 | ) | | | (90 | ) |
Accrued other expenses | | | (27,696 | ) | | | (38,431 | ) |
Net realized (gain) loss from: | | | | | | | | |
Investments | | | 7,148,696 | | | | 2,302,849 | |
Paydowns | | | 1,329,610 | | | | 377,156 | |
Change in net unrealized (appreciation) depreciation of investments | | | (17,352,551 | ) | | | (5,333,209 | ) |
Net cash provided by (used in) operating activities | | | 5,819,160 | | | | 1,659,756 | |
Cash Flows from Financing Activities | | | | | | | | |
Increase (Decrease) in cash overdraft | | | 3,446,795 | | | | 1,030,289 | |
Cash distributions paid to common shareholders | | | (9,031,739 | ) | | | (2,619,919 | ) |
Net cash provided by (used in) financing activities | | | (5,584,944 | ) | | | (1,589,630 | ) |
Net Increase (Decrease) in Cash and Cash Collateral at Brokers | | | 234,216 | | | | 70,126 | |
Cash and cash collateral at brokers at the beginning of period | | | 157,702 | | | | 46,183 | |
Cash and cash collateral at brokers at the end of period(1) | | $ | 391,918 | | | $ | 116,309 | |
| (1) | Comprised of “Cash” and “Cash collateral at brokers” as presented on the Statements of Assets and Liabilities. |
| | | | | | | | |
| | |
| Supplemental Disclosure of Cash Flow Information | | JLS | | | JMT | |
Cash paid for interest on borrowings (excluding borrowing costs) | | $ | 2,660,949 | | | $ | 835,161 | |
Non-cash financing activities not included herein consists of reinvestments of common share distributions | | | — | | | | 139,931 | |
See accompanying notes to financial statements.
32
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33
Financial Highlights
(Unaudited)
Selected data for a share outstanding throughout each period:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | |
| | | | | | Investment Operations | | | Less Distributions to
Common Shareholders | | | Common Share | |
| | | | | | | | | | |
| | | Beginning
Common
Share
NAV | | | Net
Investment
Income
(Loss)(a) | | | Net
Realized/
Unrealized
Gain (Loss) | | | Total | | | From
Net
Investment
Income | | | From
Accumulated
Net
Realized
Gains | | | Return
of
Capital | | | Total | | | Ending
NAV | | | Ending
Share
Price | |
|
JLS | |
Year ended 12/31: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2019(e) | | $ | 23.02 | | | $ | 0.38 | | | $ | 0.56 | | | $ | 0.94 | | | $ | (0.68 | ) | | $ | — | | | $ | — | | | $ | (0.68 | ) | | $ | 23.28 | | | $ | 23.22 | |
2018 | | | 24.70 | | | | 1.16 | | | | (0.76 | ) | | | 0.40 | | | | (1.52 | ) | | | (0.49 | ) | | | (0.07 | ) | | | (2.08 | ) | | | 23.02 | | | | 22.35 | |
2017 | | | 25.02 | | | | 1.34 | | | | 1.65 | | | | 2.99 | | | | (1.94 | ) | | | (1.37 | ) | | | — | | | | (3.31 | ) | | | 24.70 | | | | 24.69 | |
2016 | | | 25.09 | | | | 1.56 | | | | 0.08 | | | | 1.64 | | | | (1.43 | ) | | | (0.28 | ) | | | — | | | | (1.71 | ) | | | 25.02 | | | | 24.07 | |
2015 | | | 26.16 | | | | 1.28 | | | | (0.83 | ) | | | 0.45 | | | | (1.13 | ) | | | (0.25 | ) | | | (0.14 | ) | | | (1.52 | ) | | | 25.09 | | | | 22.71 | |
2014 | | | 25.84 | | | | 1.25 | | | | 0.62 | | | | 1.87 | | | | (1.00 | ) | | | (0.55 | )* | | | — | * | | | (1.55 | ) | | | 26.16 | | | | 23.15 | |
|
JMT | |
Year ended 12/31: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2019(e) | | | 22.27 | | | | 0.36 | | | | 0.54 | | | | 0.90 | | | | (0.68 | ) | | | — | | | | — | | | | (0.68 | ) | | | 22.49 | | | | 22.49 | |
2018 | | | 23.88 | | | | 1.11 | | | | (0.76 | ) | | | 0.35 | | | | (1.40 | ) | | | (0.48 | ) | | | (0.08 | ) | | | (1.96 | ) | | | 22.27 | | | | 22.17 | |
2017 | | | 24.14 | | | | 1.37 | | | | 1.47 | | | | 2.84 | | | | (1.76 | ) | | | (1.34 | ) | | | — | | | | (3.10 | ) | | | 23.88 | | | | 23.74 | |
2016 | | | 24.28 | | | | 1.50 | | | | 0.04 | | | | 1.54 | | | | (1.43 | ) | | | (0.25 | ) | | | — | | | | (1.68 | ) | | | 24.14 | | | | 23.16 | |
2015 | | | 25.41 | | | | 1.20 | | | | (0.80 | ) | | | 0.40 | | | | (1.01 | ) | | | (0.19 | ) | | | (0.33 | ) | | | (1.53 | ) | | | 24.28 | | | | 22.29 | |
2014 | | | 25.08 | | | | 1.22 | | | | 0.67 | | | | 1.89 | | | | (0.85 | ) | | | — | ** | | | (0.71 | ) | | | (1.56 | ) | | | 25.41 | | | | 23.17 | |
| | | | | | | | |
| | | Borrowings at the End of Period | |
| | | Aggregate
Amount
Outstanding
(000) | | | Asset
Coverage
Per $1,000 | |
|
JLS | |
Year Ended 12/31: | |
2019(e) | | $ | 147,200 | | | $ | 3,513 | |
2018 | | | 147,200 | | | | 3,485 | |
2017 | | | 147,200 | | | | 3,666 | |
2016 | | | 147,200 | | | | 3,701 | |
2015 | | | 147,200 | | | | 3,708 | |
2014 | | | 147,200 | | | | 3,823 | |
|
JMT | |
Year Ended 12/31: | |
2019(e) | | | 46,200 | | | | 3,374 | |
2018 | | | 46,200 | | | | 3,348 | |
2017 | | | 46,200 | | | | 3,518 | |
2016 | | | 46,200 | | | | 3,546 | |
2015 | | | 46,200 | | | | 3,560 | |
2014 | | | 46,200 | | | | 3,679 | |
34
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Common Share Supplemental Data/
Ratios Applicable to Common Shares | |
Common Share
Total Returns | | | | | | Ratios to Average Net Assets(c) | | | | |
| | | | | |
Based
on
NAV(b) | | | Based
on
Share
Price(b) | | | Ending
Net
Assets
(000) | | | Expenses | | | Net
Investment
Income (Loss) | | | Portfolio
Turnover
Rate(d) | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | 4.12 | % | | | 6.99 | % | | $ | 369,857 | | | | 3.08 | %*** | | | 3.30 | %*** | | | 30 | % |
| | 1.63 | | | | (1.06 | ) | | | 365,810 | | | | 2.89 | | | | 4.77 | | | | 44 | |
| | 12.21 | | | | 16.79 | | | | 392,453 | | | | 2.51 | | | | 5.12 | | | | 85 | |
| | 6.79 | | | | 13.97 | | | | 397,604 | | | | 2.42 | | | | 6.29 | | | | 73 | |
| | 1.71 | | | | 4.82 | | | | 398,601 | | | | 2.24 | | | | 4.96 | | | | 24 | |
| | 7.31 | | | | 6.72 | | | | 415,575 | | | | 2.20 | | | | 4.72 | | | | 17 | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | 4.05 | | | | 4.53 | | | | 109,691 | | | | 3.32 | *** | | | 3.20 | *** | | | 28 | |
| | 1.45 | | | | 1.73 | | | | 108,481 | | | | 3.16 | | | | 4.72 | | | | 45 | |
| | 12.01 | | | | 16.34 | | | | 116,333 | | | | 2.73 | | | | 5.47 | | | | 85 | |
| | 6.56 | | | | 11.83 | | | | 117,607 | | | | 2.67 | | | | 6.24 | | | | 76 | |
| | 1.56 | | | | 3.01 | | | | 118,279 | | | | 2.47 | | | | 4.79 | | | | 23 | |
| | 7.63 | | | | 7.81 | | | | 123,780 | | | | 2.42 | | | | 4.72 | | | | 16 | |
| (a) | Per share Net Investment Income (Loss) is calculated using the average daily shares method. |
| (b) | Total Return Based on Common Share NAV is the combination of changes in common share NAV, reinvested dividend income at NAV and reinvested capital gains distributions at NAV, if any. The last dividend declared in the period, which is typically paid on the first business day of the following month, is assumed to be reinvested at the ending NAV. The actual reinvest price for the last dividend declared in the period may often be based on the Fund’s market price (and not its NAV), and therefore may be different from the price used in the calculation. Total returns are not annualized. |
Total Return Based on Common Share Price is the combination of changes in the market price per share and the effect of reinvested dividend income and reinvested capital gains distributions, if any, at the average price paid per common share at the time of reinvestment. The last dividend declared in the period, which is typically paid on the first business day of the following month, is assumed to be reinvested at the ending market price. The actual reinvestment for the last dividend declared in the period may take place over several days, and in some instances may not be based on the market price, so the actual reinvestment price may be different from the price used in the calculation. Total returns are not annualized.
| | | | |
| (c) | | • | | Net Investment Income (Loss) ratios reflect income earned and expenses incurred on assets attributable to reverse repurchase agreements (where applicable) and/or borrowings (as described in Note 8 – Borrowing Arrangements). |
| | • | | Each ratio includes the effect of all interest expense paid and other costs related to reverse repurchase agreements and/or to borrowings, where applicable, as follows: |
| | | | |
Ratios of Interest Expense to Average Net Assets Applicable to Common Shares | |
JLS | |
Year ended 12/31: | |
2019(e) | | | 1.45 | %*** |
2018 | | | 1.26 | |
2017 | | | 0.93 | |
2016 | | | 0.79 | |
2015 | | | 0.63 | |
2014 | | | 0.60 | |
| | | | |
Ratios of Interest Expense
to Average Net Assets Applicable
to Common Shares | |
JMT | |
Year ended 12/31: | |
2019(e) | | | 1.53 | %*** |
2018 | | | 1.33 | |
2017 | | | 0.99 | |
2016 | | | 0.84 | |
2015 | | | 0.66 | |
2014 | | | 0.63 | |
| (d) | Portfolio Turnover Rate is calculated based on the lesser of long-term purchases or sales (as disclosed in Note 5 – Investment Transactions) divided by the average long-term market value during the period. |
| (e) | For the six months ended June 30, 2019. |
| * | Revised to reclassify the per common share return of capital of $0.32 to a realized gain distribution for the fiscal year ended December 31, 2014. |
| ** | Rounds to less than $0.01 per common share. |
See accompanying notes to financial statements.
35
Notes to Financial Statements
(Unaudited)
1. General Information and Significant Accounting Policies
General Information
Fund Information
The funds covered in this report and their corresponding New York Stock Exchange (“NYSE”) symbols are as follows (each a “Fund” and collectively, the “Funds”):
| | • | | Nuveen Mortgage Opportunity Term Fund (JLS) |
| | • | | Nuveen Mortgage Opportunity Term Fund 2 (JMT) |
The Funds are registered under the Investment Company Act of 1940 (the “1940 Act”), as amended, as diversified closed-end management investment companies. JLS and JMT were organized as Massachusetts business trusts on September 10, 2009 and December 16, 2009, respectively. It is anticipated that JLS and JMT will terminate on November 30, 2019 and February 28, 2020, respectively. Upon termination, the Funds will distribute all of their assets to shareholders of record as of the date of termination.
The end of the reporting period for the Funds is June 30, 2019, and the period covered by these Notes to Financial Statements is the six months ended June 30, 2019 (the “current fiscal period”).
Investment Adviser
The Funds’ investment adviser is Nuveen Fund Advisors, LLC (the “Adviser”), a subsidiary of Nuveen, LLC (“Nuveen”). Nuveen is the investment management arm of Teachers Insurance and Annuity Association of America (TIAA). The Adviser has overall responsibility for management of the Funds, oversees the management of the Funds’ portfolios, manages the Funds’ business affairs and provides certain clerical, bookkeeping and other administrative services, and, if necessary, asset allocation decisions. During the current reporting period, the Adviser was entered into sub-advisory agreements with Wellington Management Company LLP (“Wellington Management”). Wellington Management manages the Funds’ investments in mortgage-backed securities (“MBS”) and other permitted investments.
Investment Objectives and Principal Investment Strategies
Each Fund’s investment objective is to generate attractive total returns through opportunistic investments in MBS. Each Fund seeks to achieve its investment objective by investing primarily in non-agency residential mortgage-backed securities (“RMBS”) and commercial mortgage-backed securities (“CMBS”). Each Fund may also invest up to 20% of its managed assets (as defined in Note 7 – Management Fees) in other permitted investments, including cash and cash equivalents, U.S. treasury securities, non-mortgage related asset-backed securities, inverse floating rate securities, municipal securities, interest rate futures, interest rate swaps and swaptions, non-MBS credit default swaps (including swaps based on a credit default swap index, such as the CMBX Index) and other synthetic mortgage-related exposure, including equity investments in mortgage real estate investment trusts (“REITs”), as permitted by the 1940 Act.
Alternate Proposals & 100% Tender Offer
On May 23, 2019, the Board of Trustees (the “Board”) of JLS and JMT approved a series of proposals that allows shareholders the opportunity to maintain their exposure to securitized credit. In light of the upcoming scheduled termination of JLS and JMT on November 30, 2019 and February 28, 2020, respectively, these alternate proposals, which replace a previously announced merger proposal, asks shareholders of each Fund to vote to amend the charter and eliminate the term structure. For each Fund, if the Fund’s charter amendment and the other proposals described below are approved by shareholders, the Fund will conduct a tender offer for up to 100% of its outstanding shares at net asset value. If the Fund’s managed assets taking into account shares properly tendered in the tender offer would be $80 million or greater, the tender offer will be completed and the Fund’s term structure will be eliminated. If the Fund’s managed assets after the tender offer would be less than $80 million, the tender offer will be cancelled with no common shares repurchased and instead that Fund will proceed to terminate as scheduled.
The Funds currently have an investment objective to generate attractive total returns through opportunistic investments in MBS. As part of the alternate proposals, shareholders will be asked to vote on a change in investment objective to generate high current income through opportunistic investments in securitized credit. Additionally, JLS and JMT will update their investment policies to invest at least 65% of managed assets in MBS, including residential MBS and commercial MBS and may invest up to 35% in non-mortgage related asset-backed securities including, but not limited to, consumer, auto, collateralized loan obligations, solar, timeshare, aircraft and catastrophe bonds.
36
As a result of these investment policy changes, each of JLS and JMT will change its name. JLS will be renamed “Nuveen Mortgage and Income Fund” and JMT will be renamed “Nuveen Mortgage and Income Fund 2.” Additionally, as part of the alternate proposals, shareholders of each Fund will be asked to vote on a new investment management agreement with Nuveen Fund Advisors, LLC that provides for a lower fund-level management fee at each asset level and a new sub-advisory agreement with Teachers Advisors, LLC.
Significant Accounting Policies
Each Fund is an investment company and follows accounting and reporting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (ASC) Topic 946 “Financial Services – Investment Companies.” The following is a summary of significant accounting policies followed by the Funds in the preparation of their financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Investment Transactions
Investment transactions are recorded on a trade date basis. Realized gains and losses from investment transactions are determined on the specific identification method, which is the same basis used for federal income tax purposes. Investments purchased on a when-issued/delayed delivery basis may have extended settlement periods. Any investments so purchased are subject to market fluctuation during this period. The Funds have earmarked securities in their portfolios with a current value at least equal to the amount of the when-issued/delayed delivery purchase commitments.
As of the end of the reporting period, the Fund’s outstanding when-issued/delayed delivery purchase commitments were as follows:
| | | | | | | | |
| | | JLS | | | JMT | |
Outstanding when-issued/delayed delivery purchase commitments | | $ | 940,000 | | | $ | 280,000 | |
Investment Income
Investment income is comprised of interest income, which reflects the amortization of premiums and accretion of discounts for financial reporting purposes, and is recorded on an accrual basis. Investment income also reflects payment-in-kind (“PIK”) interest and paydown gains and losses, if any. PIK interest represents income received in the form of securities in lieu of cash.
Professional Fees
Professional fees presented on the Statement of Operations consist of legal fees incurred in the normal course of operations, audit fees, tax consulting fees and, in some cases, workout expenditures. Workout expenditures are incurred in an attempt to protect or enhance an investment or to pursue other claims or legal actions on behalf of Fund shareholders. If a refund is received for workout expenditures paid in a prior reporting period, such amounts will be recognized as “Legal fee refund” on the Statement of Operations.
Dividends and Distributions to Common Shareholders
Distributions to common shareholders are recorded on the ex-dividend date. The amount and timing of distributions are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP.
Each Fund makes monthly cash distributions to common shareholders of a stated dollar amount per share. Subject to approval and oversight by the Board, each Fund seeks to establish a distribution rate that roughly corresponds to the cash flows from its investment strategies through regular distributions (a “Cash Flow-Based Distribution Program”). Each Fund seeks to establish a relatively stable common share distribution rate that roughly corresponds to the Fund’s net cash flows after expense from its investments over an extended period of time. Actual net cash flows the Funds receive may differ from each Fund’s distribution rate over shorter time periods over a specific timeframe. The portion of distributions paid attributed to net unrealized gains, if any, is distributed from a Fund’s assets and is treated by common shareholders as a non-taxable distribution (“Return of Capital”) for tax purposes. In the event that total distributions during a calendar year exceed a Fund’s total return on net asset value (“NAV”), the difference will reduce NAV per common share. If a Fund’s total return on common share NAV exceeds total distributions during a calendar year, the excess will be reflected as an increase in NAV per common share. The final determination of the source and character of all distributions for the fiscal year is made after the end of the fiscal year and is reflected in the financial statements contained in the annual report as of December 31 each year.
Compensation
The Funds pay no compensation directly to those of its trustees who are affiliated with the Adviser or to its officers, all of whom receive remuneration for their services to the Funds from the Adviser or its affiliates. The Board has adopted a deferred compensation plan for independent trustees that enables trustees to elect to defer receipt of all or a portion of the annual compensation they are entitled to receive from certain Nuveen-advised funds. Under the plan, deferred amounts are treated as though equal dollar amounts had been invested in shares of select Nuveen-advised funds.
37
Notes to Financial Statements(continued)
(Unaudited)
Indemnifications
Under the Funds’ organizational documents, their officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Funds. In addition, in the normal course of business, the Funds enter into contracts that provide general indemnifications to other parties. The Funds’ maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Funds that have not yet occurred. However, the Funds have not had prior claims or losses pursuant to these contracts and expect the risk of loss to be remote.
Netting Agreements
In the ordinary course of business, the Funds may enter into transactions subject to enforceable master repurchase agreements, International Swaps and Derivatives Association, Inc. (ISDA) master agreements or other similar arrangements (“netting agreements”). Generally, the right to offset in netting agreements allows each Fund to offset certain securities and derivatives with a specific counterparty, when applicable, as well as any collateral received or delivered to that counterparty based on the terms of the agreements. Generally, each Fund manages its cash collateral and securities collateral on a counterparty basis.
The Funds’ investments subject to netting agreements as of the end of the reporting period, if any, are further described in Note 3 – Portfolio Securities and Investments in Derivatives.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets applicable to common shares from operations during the current fiscal period. Actual results may differ from those estimates.
2. Investment Valuation and Fair Value Measurements
The fair valuation input levels as described below are for fair value measurement purposes.
Fair value is defined as the price that would be received upon selling an investment or transferring a liability in an orderly transaction to an independent buyer in the principal or most advantageous market for the investment. A three-tier hierarchy is used to maximize the use of observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability. Observable inputs are based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability. Unobservable inputs are based on the best information available in the circumstances. The following is a summary of the three-tiered hierarchy of valuation input levels.
| | |
| Level 1 – | | Inputs are unadjusted and prices are determined using quoted prices in active markets for identical securities. |
| Level 2 – | | Prices are determined using other significant observable inputs (including quoted prices for similar securities, interest rates, credit spreads, etc.). |
| Level 3 – | | Prices are determined using significant unobservable inputs (including management’s assumptions in determining the fair value of investments). |
Prices of fixed-income securities are provided by an independent pricing service (“pricing service”) approved by the Board. The pricing service establishes a security’s fair value using methods that may include consideration of the following: yields or prices of investments of comparable quality, type of issue, coupon, maturity and rating, market quotes or indications of value from security dealers, evaluations of anticipated cash flows or collateral, general market conditions and other information and analysis, including the obligor’s credit characteristics considered relevant. These securities are generally classified as Level 2. In pricing certain securities, particularly less liquid and lower quality securities, the pricing service may consider information about a security, its issuer or market activity provided by the Adviser. These securities are generally classified as Level 2 or Level 3 depending on the observability of the significant inputs.
Repurchase agreements are valued at contract amount plus accrued interest, which approximates market value. These securities are generally classified as Level 2.
Futures contracts are valued using the closing settlement price or, in the absence of such a price, the last traded price, and are generally classified as Level 1.
Certain securities may not be able to be priced by the pre-established pricing methods as described above. Such securities may be valued by the Board and/or its appointee at fair value. These securities generally include, but are not limited to, restricted securities (securities which may not be publicly sold without registration under the Securities Act of 1933, as amended) for which a pricing service is unable to provide a market price; securities whose trading has been formally suspended; debt securities that have gone into default and for which there is no current market quotation; a security whose market
38
price is not available from a pre-established pricing source; a security with respect to which an event has occurred that is likely to materially affect the value of the security after the market has closed but before the calculation of a Fund’s common share NAV (as may be the case in non-U.S. markets on which the security is primarily traded) or make it difficult or impossible to obtain a reliable market quotation; and a security whose price, as provided by the pricing service, is not deemed to reflect the security’s fair value. As a general principle, the fair value of a security would appear to be the amount that the owner might reasonably expect to receive for it in a current sale. A variety of factors may be considered in determining the fair value of such securities, which may include consideration of the following: yields or prices of investments of comparable quality, type of issue, coupon, maturity and rating, market quotes or indications of value from security dealers, evaluations of anticipated cash flows or collateral, general market conditions and other information and analysis, including the obligor’s credit characteristics considered relevant. These securities are generally classified as Level 2 or Level 3 depending on the observability of the significant inputs. Regardless of the method employed to value a particular security, all valuations are subject to review by the Board and/or its appointee.
The inputs or methodologies used for valuing securities are not an indication of the risks associated with investing in those securities. The following is a summary of each Fund’s fair value measurements as of the end of the reporting period:
| | | | | | | | | | | | | | | | |
| JLS | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Long-Term Investments*: | | | | | | | | | | | | | | | | |
Mortgage-Backed Securities | | $ | — | | | $ | 453,208,691 | | | $ | — | | | $ | 453,208,691 | |
Asset-Backed Securities | | | — | | | | 55,641,961 | | | | — | | | | 55,641,961 | |
| | | | |
Short-Term Investments: | | | | | | | | | | | | | | | | |
Repurchase Agreements | | | — | | | | 13,837,248 | | | | — | | | | 13,837,248 | |
| | | | |
Investments in Derivatives: | | | | | | | | | | | | | | | | |
Futures Contracts** | | | (931,356 | ) | | | — | | | | — | | | | (931,356 | ) |
Total | | $ | (931,356 | ) | | $ | 522,687,900 | | | $ | — | | | $ | 521,756,544 | |
| | | | |
| JMT | | | | | | | | | | | | |
Long-Term Investments*: | | | | | | | | | | | | | | | | |
Mortgage-Backed Securities | | $ | — | | | $ | 134,719,427 | | | $ | 285,000 | | | $ | 135,004,427 | |
Asset-Backed Securities | | | — | | | | 18,472,612 | | | | — | | | | 18,472,612 | |
| | | | |
Short-Term Investments: | | | | | | | | | | | | | | | | |
Repurchase Agreements | | | — | | | | 4,166,634 | | | | — | | | | 4,166,634 | |
| | | | |
Investments in Derivatives: | | | | | | | | | | | | | | | | |
Futures Contracts** | | | (276,443 | ) | | | — | | | | — | | | | (276,443 | ) |
Total | | $ | (276,443 | ) | | $ | 157,358,673 | | | $ | 285,000 | | | $ | 157,367,230 | |
| * | Refer to the Fund’s Portfolio of Investments for industry classifications. |
| ** | Represents net unrealized appreciation (depreciation) as reported in the Fund’s Portfolio of Investments. |
3. Portfolio Securities and Investments in Derivatives
Portfolio Securities
Repurchase Agreements
In connection with transactions in repurchase agreements, it is each Fund’s policy that its custodian take possession of the underlying collateral securities, the fair value of which exceeds the principal amount of the repurchase transaction, including accrued interest, at all times. If the counterparty defaults, and the fair value of the collateral declines, realization of the collateral may be delayed or limited.
The following table presents the repurchase agreements for the Funds that are subject to netting agreements as of the end of the reporting period, and the collateral delivered related to those repurchase agreements.
| | | | | | | | | | | | | | |
| Fund | | Counterparty | | Short-Term
Investments, at Value | | | Collateral
Pledged (From)
Counterparty* | | | Net
Exposure | |
| JLS | | Fixed Income Clearing Corporation | | $ | 13,837,248 | | | $ | (13,837,248 | ) | | $ | — | |
| JMT | | Fixed Income Clearing Corporation | | | 4,166,634 | | | | (4,166,634 | ) | | | — | |
| * | As of the end of the reporting period, the value of the collateral pledged from the counterparty exceeded the value of the repurchase agreements. Refer to the Fund’s Portfolio of Investments for details on the repurchase agreements. |
39
Notes to Financial Statements(continued)
(Unaudited)
Investments in Derivatives
Each Fund is authorized to invest in certain derivative instruments such as futures, options and swap contracts. Each Fund limits its investments in futures, options on futures and swap contracts to the extent necessary for the Adviser to claim the exclusion from registration by the Commodity Futures Trading Commission as a commodity pool operator with respect to the Fund. The Funds record derivative instruments at fair value with changes in fair value recognized on the Statement of Operations, when applicable. Even though the Funds’ investments in derivatives may represent economic hedges, they are not considered to be hedge transactions for financial reporting purposes.
Futures Contracts
Upon execution of a futures contract, a Fund is obligated to deposit cash or eligible securities, also known as “initial margin,” into an account at its clearing broker equal to a specified percentage of the contract amount. Cash held by the broker to cover initial margin requirements on open futures contracts, if any, is recognized as “Cash collateral at brokers for investments in futures contracts” on the Statement of Assets and Liabilities. Investments in futures contracts obligate a Fund and the clearing broker to settle monies on a daily basis representing changes in the prior days “mark-to-market” of the open contracts. If a Fund has unrealized appreciation the clearing broker would credit the Fund’s account with an amount equal to appreciation and conversely if a Fund has unrealized depreciation the clearing broker would debit the Fund’s account with an amount equal to depreciation. These daily cash settlements are also known as “variation margin.” Variation margin is recognized as a receivable and/or payable for “Variation margin on futures contracts” on the Statement of Assets and Liabilities.
During the period the futures contract is open, changes in the value of the contract are recognized as an unrealized gain or loss by “marking-to-market” on a daily basis to reflect the changes in market value of the contract, which is recognized as a component of “Change in net unrealized appreciation (depreciation) of futures contracts” on the Statement of Operations. When the contract is closed or expired, a Fund records a realized gain or loss equal to the difference between the value of the contract on the closing date and value of the contract when originally entered into, which is recognized as a component of “Net realized gain (loss) from futures contracts” on the Statement of Operations.
Risks of investments in futures contracts include the possible adverse movement in the price of the securities or indices underlying the contracts, the possibility that there may not be a liquid secondary market for the contracts and/or that a change in the value of the contract may not correlate with a change in the value of the underlying securities or indices.
During the current fiscal period, the Funds used U.S. Treasury futures for duration and yield curve management purposes.
The average notional amount of futures contracts outstanding during the current fiscal period was as follows:
| | | | | | | | |
| | | JLS | | | JMT | |
Average notional amount of futures contracts outstanding* | | $ | 24,379,941 | | | $ | 7,219,668 | |
| * | The average notional amount is calculated based on the absolute aggregate notional amount of contracts outstanding at the beginning of the current fiscal period and at the end of each fiscal quarter within the current fiscal period. |
The following table presents the fair value of all futures contracts held by the Funds as of the end of the reporting period, the location of these instruments on the Statement of Assets and Liabilities and the primary underlying risk exposure.
| | | | | | | | | | | | | | | | | | |
| | | | | Location on the Statement of Assets and Liabilities | |
Underlying Risk Exposure | | Derivative
Instrument | | Asset Derivatives | | | | | | (Liability) Derivatives | |
| | Location | | Value | | | | | | Location | | Value | |
| JLS | | | | | | | | | | | | | | | | | | |
| Interest Rate | | Futures contracts | | — | | $ | — | | | | | | | Payable for variation margin
on futures contracts* | | $ | (931,356 | ) |
| JMT | | | | | | | | | | | | | | | | | | |
| Interest Rate | | Futures contracts | | — | | $ | — | | | | | | | Payable for variation margin
on futures contracts* | | $ | (276,443 | ) |
| * | Value represents unrealized appreciation (depreciation) of futures contracts as reported in the Fund’s Portfolio of Investments and not the asset and/or liability derivative location as described in the table above. |
40
The following table presents the amount of net realized gain (loss) and change in net unrealized appreciation (depreciation) recognized on futures contracts on the Statement of Operations during the current fiscal period, and the primary underlying risk exposure.
| | | | | | | | | | | | |
| Fund | | Underlying
Risk Exposure | | Derivative
Instrument | | Net Realized
Gain (Loss) from
Futures Contracts | | | Change in Net
Unrealized
Appreciation
(Depreciation) of
Futures Contracts | |
| JLS | | Interest Rate | | Futures contracts | | $ | (765,021 | ) | | $ | (616,705 | ) |
| JMT | | Interest Rate | | Futures contracts | | | (226,167 | ) | | | (184,100 | ) |
Market and Counterparty Credit Risk
In the normal course of business each Fund may invest in financial instruments and enter into financial transactions where risk of potential loss exists due to changes in the market (market risk) or failure of the other party to the transaction to perform (counterparty credit risk). The potential loss could exceed the value of the financial assets recorded on the financial statements. Financial assets, which potentially expose each Fund to counterparty credit risk, consist principally of cash due from counterparties on forward, option and swap transactions, when applicable. The extent of each Fund’s exposure to counterparty credit risk in respect to these financial assets approximates their carrying value as recorded on the Statement of Assets and Liabilities.
Each Fund helps manage counterparty credit risk by entering into agreements only with counterparties the Adviser believes have the financial resources to honor their obligations and by having the Adviser monitor the financial stability of the counterparties. Additionally, counterparties may be required to pledge collateral daily (based on the daily valuation of the financial asset) on behalf of each Fund with a value approximately equal to the amount of any unrealized gain above a pre-determined threshold. Reciprocally, when each Fund has an unrealized loss, the Funds have instructed the custodian to pledge assets of the Funds as collateral with a value approximately equal to the amount of the unrealized loss above a pre-determined threshold. Collateral pledges are monitored and subsequently adjusted if and when the valuations fluctuate, either up or down, by at least the pre-determined threshold amount.
4. Fund Shares
Common Share Transactions
Transactions in common shares for the Funds during the Funds’ current and prior fiscal period, where applicable, were as follows:
| | | | | | | | | | | | | | | | |
| | | JLS | | | JMT | |
| | | Six Months
Ended
6/30/19 | | | Year
Ended
12/31/18 | | | Six Months
Ended
6/30/19 | | | Year
Ended
12/31/18 | |
Common shares: | | | | | | | | | | | | | | | | |
Issued to shareholders due to reinvestment of distributions | | | — | | | | 577 | | | | 6,265 | | | | — | |
5. Investment Transactions
Long-term purchases and sales (including maturities but excluding derivative transactions) during the current fiscal period were as follows:
| | | | | | | | |
| | | JLS | | | JMT | |
Purchases | | $ | 150,932,642 | | | $ | 45,484,723 | |
Sales and maturities | | | 150,892,761 | | | | 42,889,450 | |
6. Income Tax Information
Each Fund is a separate taxpayer for federal income tax purposes. Each Fund intends to distribute substantially all of its net investment company taxable income to common shareholders and to otherwise comply with the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies. Therefore, no federal income tax provision is required.
For all open tax years and all major taxing jurisdictions, management of the Funds has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements. Open tax years are those that are open for examination by taxing authorities (i.e., generally the last four tax year ends and the interim tax period since then). Furthermore, management of the Funds is also not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
41
Notes to Financial Statements(continued)
(Unaudited)
The following information is presented on an income tax basis. Differences between amounts for financial statement and federal income tax purposes are primarily due to recognition of market discount accretion on investments and timing differences in recognizing certain gains and losses on investment transactions. To the extent that differences arise that are permanent in nature, such amounts are reclassified within the capital accounts as detailed below. Temporary differences do not require reclassification. Temporary and permanent differences do not impact the common share NAVs of the Funds.
The tables below present the cost and unrealized appreciation (depreciation) of each Fund’s investment portfolio, as determined on a federal income tax basis, as of June 30, 2019.
For purposes of this disclosure, derivative tax cost is generally the sum of any upfront fees or premiums exchanged and any amounts unrealized for income statement reporting but realized in income and/or capital gains for tax reporting. If a particular derivative category does not disclose any tax unrealized appreciation or depreciation, the change in value of those derivatives have generally been fully realized for tax purposes.
| | | | | | | | |
| | | JLS | | | JMT | |
Tax cost of investments | | $ | 507,676,537 | | | $ | 153,169,555 | |
Gross unrealized: | | | | | | | | |
Appreciation | | $ | 22,330,434 | | | $ | 6,753,611 | |
Depreciation | | | (7,319,071 | ) | | | (2,279,493 | ) |
Net unrealized appreciation (depreciation) of investments | | $ | 15,011,363 | | | $ | 4,474,118 | |
| | |
| | | JLS | | | JMT | |
Tax cost of futures contracts | | $ | (931,356 | ) | | $ | (276,443 | ) |
Net unrealized appreciation (depreciation) of futures contracts | | | — | | | | — | |
|
Permanent differences, primarily due to investments in MBS and treatment of notional principal contracts, resulted in reclassifications among the Funds’ components of net assets as of December 31, 2018, the Funds’ last tax year end. The tax components of undistributed net ordinary income and net long-term capital gains as of December 31, 2018, the Funds’ last tax year end, were as follows: | |
| | | JLS | | | JMT | |
Undistributed net ordinary income | | | — | | | | — | |
Undistributed net long-term capital gains | | | — | | | | — | |
The tax character of distributions paid during the Funds’ last tax year ended December 31, 2018 was designated for purposes of the dividends paid deduction as follows: | |
| | | JLS | | | JMT | |
Distributions from net ordinary income1 | | $ | 24,942,622 | | | $ | 6,847,505 | |
Distributions from net long-term capital gains | | | 7,026,254 | | | | 2,278,582 | |
Return of capital | | | 1,076,333 | | | | 400,182 | |
1 Net ordinary income consists of net taxable income derived from dividends, interest, and net short-term capital gains, if any. | |
The Funds have elected to defer late-year losses in accordance with federal income tax rules. These losses are treated as having arisen on the first day of the current fiscal year. The Funds have elected to defer losses as follows: | |
| | | JLS | | | JMT | |
Post-October capital losses2 | | $ | 623,866 | | | $ | 183,909 | |
Late-year ordinary losses3 | | | 2,881,904 | | | | 791,943 | |
2 Capital losses incurred from November 1, 2018 through December 31, 2018, the Funds’ last tax year end. 3 Specified losses incurred from November 1, 2018 through December 31, 2018. | |
7. Management Fees
Each Fund’s management fee compensates the Adviser for overall investment advisory and administrative services and general office facilities. Wellington Management is compensated for its services to the Funds from the management fees paid to the Adviser.
Each Fund’s management fee consists of two components – a fund-level fee, based only on the amount of assets within each individual Fund, and a complex-level fee, based on the aggregate amount of all eligible fund assets managed by the Adviser. This pricing structure enables Fund common shareholders to benefit from growth in the assets within their respective Fund as well as from growth in the amount of complex-wide assets managed by the Adviser.
42
The annual fund-level fee, payable monthly, for each Fund is calculated according to the following schedule:
| | | | | | | | |
| Average Daily Managed Assets1 | | JLS
Fund-Level Fee Rate | | | JMT
Fund-Level Fee Rate | |
For the first $125 million | | | 0.9500 | % | | | 0.9500 | % |
For the next $125 million | | | 0.9375 | | | | 0.9375 | |
For the next $150 million | | | 0.9250 | | | | 0.9250 | |
For the next $600 million | | | 0.9125 | | | | 0.9125 | |
For managed assets over $1 billion | | | 0.9000 | | | | 0.9000 | |
The annual complex-level fee, payable monthly, for each Fund is calculated by multiplying the current complex-wide fee rate, determined according to the following schedule by the Fund’s daily managed assets:
| | | | |
| Complex-Level Eligible Asset Breakpoint Level2 | | Effective Complex-Level Fee
Rate at Breakpoint Level | |
$55 billion | | | 0.2000 | % |
$56 billion | | | 0.1996 | |
$57 billion | | | 0.1989 | |
$60 billion | | | 0.1961 | |
$63 billion | | | 0.1931 | |
$66 billion | | | 0.1900 | |
$71 billion | | | 0.1851 | |
$76 billion | | | 0.1806 | |
$80 billion | | | 0.1773 | |
$91 billion | | | 0.1691 | |
$125 billion | | | 0.1599 | |
$200 billion | | | 0.1505 | |
$250 billion | | | 0.1469 | |
$300 billion | | | 0.1445 | |
| 1 | “Managed assets” means the total assets of the Fund, minus the sum of its accrued liabilities (other than the Fund liabilities incurred for the express purpose of creating effective leverage). Total assets for this purpose shall include assets attributable to each Fund’s use of effective leverage (whether or not those assets are reflected in the Fund’s financial statements for the purposes of U.S. GAAP). |
| 2 | The complex-level fee is based on the aggregate daily managed assets (as “managed assets” is defined in each Nuveen fund’s investment management agreement with the Adviser, which generally includes assets attributable to any preferred shares that may be outstanding and any borrowings (including the issuance of commercial paper or notes)) of the Nuveen open-end and closed-end Funds that constitute “eligible assets.” Eligible assets do not include assets attributable to investments in other Nuveen funds or assets in excess of a determined amount (originally $2 billion) added to the Nuveen fund complex in connection with the Adviser’s assumption of the management of the former First American Funds effective January 1, 2011. As of June 30, 2019, the complex-level fee for each Fund was 0.1577%. |
8. Borrowing Arrangements
Each Fund has entered into a borrowing arrangement (“Borrowings”) as a means of leverage. As of the end of the reporting period, each Fund’s maximum commitment amount under its Borrowings is as follows:
| | | | | | | | |
| | | JLS | | | JMT | |
Maximum commitment amount | | $ | 148,000,000 | | | $ | 46,500,000 | |
As of the end of the reporting period, each Fund’s outstanding balance on its Borrowings was as follows:
| | | | | | | | |
| | |
| | | JLS | | | JMT | |
Outstanding balance on Borrowings | | $ | 147,200,000 | | | $ | 46,200,000 | |
Interest charged on the outstanding balance of Borrowings for each Fund was equal to the1-Month LIBOR plus 1.10% per annum. In addition to interest expense, each Fund may also pay a fee of 1.10%, which shall accrue daily based on the amount of the difference between 85% of the maximum commitment amount and the drawn balance, when such drawn balance is less than 85% of the maximum commitment amount.
During the current fiscal period, the average daily balance outstanding and average annual interest rate on each Fund’s Borrowings were as follows:
| | | | | | | | |
| | | JLS | | | JMT | |
Average daily balance outstanding | | $ | 147,200,000 | | | $ | 46,200,000 | |
Average annual interest rate | | | 3.57 | % | | | 3.57 | % |
43
Notes to Financial Statements(continued)
(Unaudited)
In order to maintain these Borrowings, each Fund must meet certain collateral, asset coverage and other requirements. Each Fund’s Borrowings outstanding are secured by assets in the Fund’s Portfolio of Investments.
Each Fund’s Borrowings outstanding is recognized as “Borrowings” on the Statement of Assets and Liabilities. Interest expense incurred on the borrowed amount and undrawn balance are recognized as a component of “Interest expense on borrowings” on the Statement of Operations.
Inter-Fund Borrowing and Lending
The Securities and Exchange Commission (“SEC”) has granted an exemptive order permitting registered open-end and closed-end Nuveen funds to participate in an inter-fund lending facility whereby the Nuveen funds may directly lend to and borrow money from each other for temporary purposes (e.g., to satisfy redemption requests or when a sale of securities “fails,” resulting in an unanticipated cash shortfall) (the “Inter-Fund Program”). The closed-end Nuveen funds, including the Funds covered by this shareholder report, will participate only as lenders, and not as borrowers, in the Inter-Fund Program because such closed-end funds rarely, if ever, need to borrow cash to meet redemptions. The Inter-Fund Program is subject to a number of conditions, including, among other things, the requirements that (1) no fund may borrow or lend money through the Inter-Fund Program unless it receives a more favorable interest rate than is typically available from a bank or other financial institution for a comparable transaction; (2) no fund may borrow on an unsecured basis through the Inter-Fund Program unless the fund’s outstanding borrowings from all sources immediately after the inter-fund borrowing total 10% or less of its total assets; provided that if the borrowing fund has a secured borrowing outstanding from any other lender, including but not limited to another fund, the inter-fund loan must be secured on at least an equal priority basis with at least an equivalent percentage of collateral to loan value; (3) if a fund’s total outstanding borrowings immediately after an inter-fund borrowing would be greater than 10% of its total assets, the fund may borrow through the inter-fund loan on a secured basis only; (4) no fund may lend money if the loan would cause its aggregate outstanding loans through the Inter-Fund Program to exceed 15% of its net assets at the time of the loan; (5) a fund’s inter-fund loans to any one fund shall not exceed 5% of the lending fund’s net assets; (6) the duration of inter-fund loans will be limited to the time required to receive payment for securities sold, but in no event more than seven days; and (7) each inter-fund loan may be called on one business day’s notice by a lending fund and may be repaid on any day by a borrowing fund. In addition, a Nuveen fund may participate in the Inter-Fund Program only if and to the extent that such participation is consistent with the fund’s investment objective and investment policies. The Board is responsible for overseeing the Inter-Fund Program.
The limitations detailed above and the other conditions of the SEC exemptive order permitting the Inter-Fund Program are designed to minimize the risks associated with Inter-Fund Program for both the lending fund and the borrowing fund. However, no borrowing or lending activity is without risk. When a fund borrows money from another fund, there is a risk that the loan could be called on one day’s notice or not renewed, in which case the fund may have to borrow from a bank at a higher rate or take other actions to payoff such loan if an inter-fund loan is not available from another fund. Any delay in repayment to a lending fund could result in a lost investment opportunity or additional borrowing costs.
During the current reporting period, none of the Funds covered by this shareholder report have entered into any inter-fund loan activity.
9. New Accounting Pronouncements
FASB Accounting Standards Update (“ASU”) 2017-08 (“ASU 2017-08”) Premium Amortization on Purchased Callable Debt Securities
The FASB has issuedASU 2017-08, which shortens the premium amortization period for purchased non-contingently callable debt securities.ASU 2017-08 specifies that the premium amortization period ends at the earliest call date, for purchased non-contingently callable debt securities.ASU 2017-08 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. During the current fiscal period, ASU 2017-08 became effective for the Funds and it did not have a material impact on the Funds’ financial statements.
Fair Value Measurement: Disclosure Framework
During August 2018, the FASB issued Accounting Standards Update (“ASU”) 2018-13 (“ASU 2018-13”),Fair Value Measurement: Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurements. ASU 2018-13 modifies the disclosures required by Topic 820,Fair Value Measurements. The amendments in ASU 2018-13 are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Management has early implemented this guidance and it did not have a material impact on the Fund’s financial statements.
10. Subsequent Events
Complex-Level Management Fee
Effective August 1, 2019 (subsequent to the close of the reporting period), “eligible assets” of the complex-level management fee will include certain assets of certain Nuveen funds that were reorganized into funds advised by an affiliate of the Adviser during the 2019 calendar year.
Bank Borrowings
Subsequent to the end of the reporting period, JLS and JMT reduced their Borrowings maximum commitment and borrowings outstanding until August 26, 2019, at which time the Funds terminated their borrowings arrangement.
44
Additional Fund Information
| | | | | | | | |
| Board of Trustees | | | | | | | | |
| Margo Cook* | | Judith M. Stockdale | | Carole E. Stone | | Terence J. Toth | | Margaret L. Wolff |
| Jack B. Evans | | William C. Hunter | | Albin F. Moschner | | John K. Nelson | | Robert L. Young |
| * | Interested Board Member. |
| | | | | | | | |
| | | | | |
Fund Manager Nuveen Fund Advisors, LLC 333 West Wacker Drive Chicago, IL 60606 | | Custodian State Street Bank & Trust Company One Lincoln Street Boston, MA 02111 | | Legal Counsel Chapman and Cutler LLP Chicago, IL 60603 | | Independent Registered
Public Accounting Firm PricewaterhouseCoopers LLP
One North Wacker Drive Chicago, IL 60606 | | Transfer Agent and
Shareholder Services Computershare Trust
Company, N.A. 250 Royall Street Canton, MA 02021 (8oo) 257-8787 |
Portfolio of Investments Information
Each Fund is required to file its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its report on Form N-PORT. You may obtain this information on the SEC’s website at http://www.sec.gov.
Nuveen Funds’ Proxy Voting Information
You may obtain (i) information regarding how each fund voted proxies relating to portfolio securities held during the most recent twelve-month period ended June 30, without charge, upon request, by calling Nuveen toll-free at (800) 257-8787 or on Nuveen’s website at www.nuveen.com and (ii) a description of the policies and procedures that each fund used to determine how to vote proxies relating to portfolio securities without charge, upon request, by calling Nuveen toll free at (800) 257-8787. You may also obtain this information directly from the SEC. Visit the SEC on-line at http://www.sec.gov.
CEO Certification Disclosure
Each Fund’s Chief Executive Officer (CEO) has submitted to the New York Stock Exchange (NYSE) the annual CEO certification as required by Section 303A.12(a) of the NYSE Listed Company Manual. Each Fund has filed with the SEC the certification of its CEO and Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act.
Common Share Repurchases
Each Fund intends to repurchase, through its open-market share repurchase program, shares of its own common stock at such times and in such amounts as is deemed advisable. During the period covered by this report, each Fund repurchased shares of its common stock, as shown in the accompanying table. Any future repurchases will be reported to shareholders in the next annual or semi-annual report.
| | | | | | | | |
| | | JLS | | | JMT | |
Common shares repurchased | | | — | | | | — | |
FINRA BrokerCheck
The Financial Industry Regulatory Authority (FINRA) provides information regarding the disciplinary history of FINRA member firms and associated investment professionals. This information as well as an investor brochure describing FINRA BrokerCheck is available to the public by calling the FINRA BrokerCheck Hotline number at (800) 289-9999 or by visiting www.FINRA.org.
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Glossary of Terms Used in this Report
| ∎ | | Average Annual Total Return: This is a commonly used method to express an investment’s performance over a particular, usually multi-year time period. It expresses the return that would have been necessary each year to equal the investment’s actual cumulative performance (including change in NAV or market price and reinvested dividends and capital gains distributions, if any) over the time period being considered. |
| ∎ | | Bloomberg Barclays U.S. Aggregate Bond Index: An unmanaged index that includes all investment-grade, publicly issued, fixed-rate, dollar denominated, non-convertible debt issues and commercial mortgage backed securities with maturities of at least one year and outstanding par values of $150 million or more. Index returns assume reinvestment of distributions, but do not include the effects of any applicable sales charges or management fees. |
| ∎ | | Bloomberg Barclays Commercial Mortgage-Backed Securities (CMBS) Aggregate Index: An index that measures the performance of the commercial mortgage-backed securities market. Benchmark returns assume reinvestment of distributions, but do not reflect any applicable sales charges or management fees. |
| ∎ | | Commercial Mortgage-Backed Securities (CMBS): Commercial mortgage-backed securities are backed by cash flows of a mortgage or pool of mortgages on commercial real estate. CMBS generally are structured to provide protection to the senior class investors against potential losses on the underlying mortgage loans. CMBS are typically characterized by the following: i) loans on multi-family housing, non-residential property, ii) payments based on the amortization schedule of 25-30 years with a balloon payment due usually after 10 years, and iii) restrictions on prepayments. |
| ∎ | | Duration: Duration is a measure of the expected period over which a bond’s principal and interest will be paid, and consequently is a measure of the sensitivity of a bond’s or bond Fund’s value to changes when market interest rates change. Generally, the longer a bond’s or Fund’s duration, the more the price of the bond or Fund will change as interest rates change. |
| ∎ | | Effective Leverage: Effective leverage is a fund’s effective economic leverage, and includes both regulatory leverage (see below) and the leverage effects of certain derivative investments in the fund’s portfolio that increase the fund’s investment exposure. |
| ∎ | | Leverage: Leverage is created whenever a fund has investment exposure (both reward and/or risk) equivalent to more than 100% of the investment capital. |
| ∎ | | Mortgage-Backed Securities (MBS): Mortgage-backed securities (MBS) are bonds backed by pools of mortgages, usually with similar characteristics, and which return principal and interest in each payment. MBS are composed of residential mortgages (RMBS) or commercial mortgages (CMBS). RMBS are further divided into agency RMBS and non-agency RMBS, depending on the issuer. |
| ∎ | | Net Asset Value (NAV) Per Share: A fund’s Net Assets is equal to its total assets (securities, cash, accrued earnings and receivables) less its total liabilities. NAV per share is equal to the fund’s Net Assets divided by its number of shares outstanding. |
| ∎ | | Regulatory Leverage: Regulatory leverage consists of preferred shares issued by or borrowings of a fund. Both of these are part of a fund’s capital structure. Regulatory leverage is subject to asset coverage limits set in the Investment Company Act of 1940. |
| ∎ | | Residential Mortgage-Backed Securities (RMBS): Residential mortgage-backed securities are securities the payments on which depend primarily on the cash flow from residential mortgage loans made to borrowers that are secured by residential real estate. RMBS consist of agency and non-agency RMBS. Agency RMBS have agency guarantees that assure investors that they will receive timely payment of interest and principal, regardless of delinquency or default rates on the underlying loans. Agency RMBS include securities issued by the Government National Mortgage Association, the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, and other federal agencies, or issues guaranteed by them. Non-agency RMBS do not have agency guarantees. Non-agency RMBS have credit enhancement built into the structure to shield investors from borrower delinquencies. The spectrum of non-agency residential mortgage loans includes traditional jumbo loans (prime), alternative-A loans (Alt-A), and home equity loans (subprime). |
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Reinvest Automatically, Easily and Conveniently
Nuveen makes reinvesting easy. A phone call is all it takes to set up your reinvestment account.
Nuveen Closed-End Funds Automatic Reinvestment Plan
Your Nuveen Closed-End Fund allows you to conveniently reinvest distributions in additional Fund shares.
By choosing to reinvest, you’ll be able to invest money regularly and automatically, and watch your investment grow through the power of compounding. Just like distributions in cash, there may be times when income or capital gains taxes may be payable on distributions that are reinvested.
It is important to note that an automatic reinvestment plan does not ensure a profit, nor does it protect you against loss in a declining market.
Easy and convenient
To make recordkeeping easy and convenient, each quarter you’ll receive a statement showing your total distributions, the date of investment, the shares acquired and the price per share, and the total number of shares you own.
How shares are purchased
The shares you acquire by reinvesting will either be purchased on the open market or newly issued by the Fund. If the shares are trading at or above net asset value at the time of valuation, the Fund will issue new shares at the greater of the net asset value or 95% of the then-current market price. If the shares are trading at less than net asset value, shares for your account will be purchased on the open market. If the Plan Agent begins purchasing Fund shares on the open market while shares are trading below net asset value, but the Fund’s shares subsequently trade at or above their net asset value before the Plan Agent is able to complete its purchases, the Plan Agent may cease open-market purchases and may invest the uninvested portion of the distribution in newly-issued Fund shares at a price equal to the greater of the shares’ net asset value or 95% of the shares’ market value on the last business day immediately prior to the purchase date. Distributions received to purchase shares in the open market will normally be invested shortly after the distribution payment date. No interest will be paid on distributions awaiting reinvestment. Because the market price of the shares may increase before purchases are completed, the average purchase price per share may exceed the market price at the time of valuation, resulting in the acquisition of fewer shares than if the distribution had been paid in shares issued by the Fund. A pro rata portion of any applicable brokerage commissions on open market purchases will be paid by Plan participants. These commissions usually will be lower than those charged on individual transactions.
Flexible
You may change your distribution option or withdraw from the Plan at any time,
should your needs or situation change.
You can reinvest whether your shares are registered in your name, or in the name of a brokerage firm, bank, or other nominee. Ask your investment advisor if his or her firm will participate on your behalf. Participants whose shares are registered in the name of one firm may not be able to transfer the shares to another firm and continue to participate in the Plan.
The Fund reserves the right to amend or terminate the Plan at any time. Although the Fund reserves the right to amend the Plan to include a service charge payable by the participants, there is no direct service charge to participants in the Plan at this time.
Call today to start reinvesting distributions
For more information on the Nuveen Automatic Reinvestment Plan or to enroll in or withdraw from the Plan, speak with your financial advisor or call us at (8oo) 257-8787.
47
Annual Investment Management Agreement Approval Process
(Unaudited)
| I. | | Approval of New Investment Management Agreements and NewSub-Advisory Agreements |
At a meeting held onMay 21-23, 2019 (the“Meeting”), the Board of Trustees (the“Board,” and each Trustee, a“Board Member”) of the Nuveen Mortgage Opportunity Term Fund (JLS) (“Mortgage Opportunity”) and Nuveen Mortgage Opportunity Term Fund 2 (JMT) (“Mortgage Opportunity 2”) (each a“Fund” and collectively the“Funds”), including the Board Members who are not “interested persons” as defined under the Investment Company Act of 1940 (the“1940 Act”) (the“Independent Board Members”), approved on behalf of its respective Fund, a new investment management agreement (the“New Investment Management Agreement”) with Nuveen Fund Advisors (the“Adviser”) pursuant to which the Adviser will continue to serve as investment adviser to the respective Fund and a newsub-advisory agreement (the“NewSub-Advisory Agreement”) with Teachers Advisors, LLC (the“Sub-Adviser” or“TAL”) pursuant to which theSub-Adviser will serve as the new investmentsub-adviser to the Fund. The New Investment Management Agreements and NewSub-Advisory Agreements are each a“New Advisory Agreement” and collectively referred to as the“New Advisory Agreements,” and the Adviser and theSub-Adviser are collectively, the“Fund Advisers” and each, a“Fund Adviser.”
Mortgage Opportunity and Mortgage Opportunity 2 are each term funds scheduled to terminate on November 30, 2019 and February 28, 2020, respectively. In light of the pending terminations, the Adviser, at the Meeting and prior meetings, provided the Boards with information regarding various alternatives to provide shareholders with the opportunity to maintain their securitized credit exposure or to exit their investment at net asset value through a tender offer. At the Meeting, each Board approved on behalf of its respective Fund, among other things, the amendment to the Fund’s Declaration of Trust to eliminate the term structure, the adoption of a new investment objective, the adoption of certainnon-fundamental policies that would permit broader exposure tonon-mortgage related asset-backed securities, the New Investment Management Agreement and the NewSub-Advisory Agreement. The Independent Board Members of each Board, however, also recognized that the elimination of the term structure would result in shareholders forgoing the opportunity to liquidate their shares in the Funds at net asset value which would occur if the Funds terminated. While some shareholders may want the continued investment exposure to securitized credit through the restructured Funds, the Boards considered that other shareholders may want the opportunity to receive their net asset value at termination pursuant to the Funds’ original terms. In weighing these competing interests, each Board authorized its respective Fund to commence a tender offer for shareholders to tender up to 100% of their shares at net asset value, subject to certain conditions being met (the tender offer together with the foregoing proposed modifications are the“Restructuring Proposals”).
To assist the Boards in their evaluation of the New Advisory Agreements with the Fund Advisers, the Independent Board Members had received, in adequate time in advance of the Meeting or prior meetings, materials which outlined, among other things:
| | • | | the nature, extent and quality of the services expected to be provided by the Fund Adviser; |
| | • | | the organization of the Fund Adviser, including the responsibilities of various departments and key personnel; |
| | • | | the expertise and background of the Fund Adviser with respect to the securitized credit asset class; |
| | • | | certain performance information (as described below); |
| | • | | the profitability of Nuveen Investments, Inc. and its affiliates for their advisory activities; |
| | • | | the proposed management fees of the Fund Adviser, including comparisons of such fees with the management fees of comparable funds (as described below); |
| | • | | the expenses of the Fund, including comparisons of the Fund’s expense ratio with the expense ratios of comparable funds; and |
| | • | | the soft dollar practices of theSub-Adviser, if any. |
At the Meeting and/or prior meetings, the Adviser made presentations to and responded to questions from the Boards. During the Meeting and/or prior meetings, the Independent Board Members also met privately with their legal counsel to, among other things, review a Board’s duties under the 1940 Act, the general principles of state law in reviewing and approving advisory
48
contracts, the standards used by courts in determining whether investment company boards of directors have fulfilled their duties, factors to be considered in voting on advisory contracts and an adviser’s fiduciary duty with respect to advisory agreements and compensation. The information provided supplemented the information provided to the Boards and their committees throughout the year. As a result, the Independent Board Members employed the accumulated information, knowledge, and experience the Board Members had gained during their tenure on the Boards governing the Funds and working with the Fund Advisers in their review of the New Advisory Agreements.
It is with this background that the Independent Board Members considered the New Advisory Agreements. As outlined in more detail below, the Independent Board Members considered all factors they believed relevant with respect to the Funds, including, among other things: (a) the nature, extent and quality of the services expected to be provided by the Fund Advisers; (b) investment performance, as described below; (c) the advisory fees and costs of the services expected to be provided to the Funds and the profitability of Nuveen Investments; (d) the extent of any anticipated economies of scale; (e) any benefits expected to be derived by the Fund Advisers from their relationships with the Funds; and (f) other factors.
In deciding to approve the New Advisory Agreements, the Independent Board Members did not identify a particular factor as determinative, but rather the decision reflected the comprehensive consideration of all the information provided, and each Board Member may have attributed different levels of importance to the various factors and information considered in connection with the approval process. The following summarizes the principal factors, but not all the factors, the Boards considered in deciding to approve the New Advisory Agreements and their conclusions.
| A. | | Nature, Extent and Quality of Services |
In evaluating the New Advisory Agreements, the Independent Board Members considered the nature, extent and quality of the respective Fund Adviser’s services, including portfolio management services and administrative services. With respect to the Adviser, the Boards recognized the comprehensive set of management, oversight and administrative services the Adviser and its affiliates provided to manage and operate the Funds in a highly regulated industry. As illustrative, these services included, but were not limited to, product management; investment oversight, risk management and securities valuation services; fund accounting and administration services; board support and administration services; compliance and regulatory oversight services; legal support; and leverage, capital and asset maintenance services. In addition to the services provided by the Adviser, the Boards have also noted the business-related risks the Adviser incurs in managing the Funds, including entrepreneurial, legal and litigation risks. The Boards further considered the proposed division of responsibilities between the Adviser and theSub-Adviser and the investment and compliance oversight over theSub-Adviser to be provided by the Adviser.
With respect to theSub-Adviser, the Boards recognized that the Adviser recommended theSub-Adviser as the newsub-adviser to the Funds. The Boards noted that theSub-Adviser will generally provide the portfolio services for the Funds. The Boards considered that the Funds were originally designed, in part, to invest in mortgage backed securities (i.e., MBS) and participate in the Federal government’s Public-Private Investment Program (the“PPIP”) which had a scheduled eight-year term. The Funds also were structured originally as term funds. The Boards recognized that the Adviser believes that securitized credit continues to be an attractive asset class. Accordingly, in connection with the proposed elimination of the term structure of the Funds, the Boards approved a revised investment objective and expanded securitized credit mandate for the Funds permitting the Funds to have greater exposure to asset-backed securities and securitized credit that are not mortgage related. In considering TAL as the newSub-Adviser, the Boards considered information regarding, among other things, the organization of the fixed income investment team, the composition of the securitized credit team, the experience of the securitized credit team in managing the securitized credit asset class, and the investment process of the team.
Based on its review, each Board determined, in the exercise of its reasonable business judgment, that it was satisfied with the nature, extent and quality of services to be provided to its restructured Fund under each applicable New Advisory Agreement.
| B. | | The Investment Performance of the Funds and Fund Advisers |
As part of its evaluation of services, the Boards considered the investment performance of each Fund. In this regard, the Boards reviewed Fund performance over the quarter,one-, three-, and five-year periods ended December 31, 2018 as well as
49
Annual Investment Management Agreement Approval Process(continued)
(Unaudited)
performance data for the first quarter of 2019 ending March 29, 2019. The Independent Board Members recognized that they also had reviewed Fund performance over various time periods at their quarterly meetings throughout the year. The Boards reviewed Fund performance on an absolute basis and in comparison to the performance of peer funds (the“Performance Peer Group”) and its benchmark. In reviewing performance, the Board Members were aware of the inherent limitations in comparative performance data as the fund peers or benchmarks may pursue differing objective(s), strategies or have other characteristics that limit the value of the comparative data. In addition to the foregoing, in recognizing the importance of secondary market trading to shareholders ofclosed-end funds, the Boards also reviewed, among other things, the premium or discount to net asset value of the Funds as of a specified date as well as the Funds’ total return based on net asset value and market price over various periods.
In their review, the Boards noted that for Mortgage Opportunity, such Fund ranked in the third quartile of its Performance Peer Group for theone-year period, first quartile in the three-year period and second quartile in the five-year period ended December 31, 2018. The Fund also outperformed its benchmark, the Barclays US Aggregate Bond Index, in theone-, three- and five-year periods ended December 31, 2018. In addition, for Mortgage Opportunity 2, the Fund ranked in the third quartile of its Performance Peer Group for theone-year period and second quartile in the three- and five-year periods ended December 31, 2018. The Fund also outperformed its benchmark, the Barclays US Aggregate Bond Index, in theone-, three- and five-year periods ended December 31, 2018.
Each Board was satisfied with its Fund’s overall performance. However, the Boards recognized that the past performance was of limited value given that, subject to shareholder approval, the restructured Funds would be following a modified investment mandate with TAL as the newSub-Adviser replacing Wellington Management Company LLP (“Wellington Management”).
| C. | | Fees, Expenses and Profitability |
In evaluating the management fees and expenses that the Funds were expected to bear, the Boards considered the Funds’ proposed advisory fee arrangements as well as reviewed the existing advisory fee arrangements and the Funds’ total operating expense ratios. More specifically, the Boards considered the Funds’ current advisory andsub-advisory fee schedules. The Boards further reviewed, among other things, the respective Fund’s gross and net management fee rates and net total expense ratio in relation to those of a comparable universe of funds (the“Peer Universe”) established by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent provider of investment company data. The Boards noted that each Fund had a net management fee and net expense ratio (excluding investment-related expenses of leverage and taxes) that were higher than its respective peer averages based on common assets for the latest fiscal year. The Boards, however, considered the methodology employed by Broadridge and considered that differences between the strategies of the applicable Fund and its respective Peer Universe may limit the value of the comparative data. In this regard, the Boards noted that the Funds’ net expense ratios were higher than the average of their Peer Universe, in part, due to the limited size of the Peer Universe which contained only threenon-Nuveen funds. Further, the Boards recognized that differences in the amount, terms and cost of leverage employed by the Funds compared to peers will also impact the comparative data.
Notwithstanding the foregoing, the Boards noted that the Funds’ management fee is comprised of a fund-level fee and a complex-level fee. The Boards considered that under the New Investment Management Agreement for each Fund, the annual fund-level management fee rate charged on average daily managed assets is 15 basis points lower at each breakpoint than the current fund-level management fee schedule of each Fund. The Boards further noted that the Adviser agreed to waive fees and reimburse expenses in an amount equal to 1.5% of each Fund’s managed assets for the first six months, 0.75% for the next three months and 0.25% for the next three months for the first year following the effectiveness of the Restructuring Proposals, subject to certain conditions being met.
In their review of the fee arrangements for the Funds, the Boards further considered the proposedsub-advisory fee rate for TAL as the newSub-Adviser to the Funds. The Boards recognized that each Fund currently pays 40% of the total annual management fee to the Adviser pursuant to its existing investment management agreement with the Adviser (the“Original Investment Management Agreement”) and 60% of the total annual management fee to Wellington Management pursuant to its existingsub-advisory agreement (the“OriginalSub-Advisory Agreement”). Under the New Investment Management
50
Agreements, the respective Fund would pay the Adviser 100% of the total annual management fee. The Adviser, in turn, would pay TAL for serving assub-adviser to the respective Fund 50% of the total annual management fee (net of applicable breakpoints, waivers and reimbursements) the Adviser receives under the applicable New Investment Management Agreement. Accordingly, the Adviser will pay TAL and not the Funds.
Based on its review of the information provided, each Board determined that its respective Fund’s management fees (as applicable) to a Fund Adviser were reasonable in light of the nature, extent and quality of services provided to the Fund.
| | 2. | | Comparisons with the Fees of Other Clients |
In determining the appropriateness of fees, the Boards also considered information regarding the fee rates the respective Fund Advisers charged for certain other types of clients and the type of services provided to these other clients. With respect to the Adviser and/or theSub-Adviser, such other clients included foreign investment companies offered by Nuveen and certain funds advised by theSub-Adviser. The Boards reviewed, among other things, the range of fees assessed for the foreign investment companies in which Nuveen affiliates serve as an internalsub-adviser. The Board, however, considered that the differences in client base, governing bodies and operational complexities contributed to the differing management fee levels. Further, the Boards recognized that TAL also serves assub-adviser to certain Nuveen exchange-traded funds (“ETFs”) and reviewed the range of management fees for such ETFs. The Boards, however, noted the passive management of the ETFs compared to the active management of the Funds also contributed to the differences in management fees. In general, the Boards noted that the higher fee levels reflect higher levels of services provided by the adviser, increased investment management complexity, greater product management requirements and higher levels of business risk or some combination of these factors. The Boards also reviewed the management fees and expense ratios of certain funds advised by theSub-Adviser in the TIAA-CREF family of funds but considered, among other things, the different pricing philosophies of such funds and the different services provided by TAL. The Boards concluded that the varying levels of fees were justified given, among other things, the inherent differences in the products and the level of services provided to the Nuveen funds versus other clients, the differing regulatory requirements and legal liabilities and the entrepreneurial risks incurred in sponsoring and advising a registered investment company.
| | 3. | | Profitability of Fund Advisers |
In conjunction with their review of fees, the Independent Board Members considered Nuveen Investments’ level of profitability for its advisory services to the Nuveen funds for the calendar years 2018 and 2017. In considering profitability, the Independent Board Members reviewed the level of profitability realized by Nuveen Investments including and excluding any distribution expenses incurred by Nuveen Investments from its own resources. The Independent Board Members also reviewed a description of the expense allocation methodology employed to develop the financial information and a summary of the history of changes to the methodology over the years. The Independent Board Members were aware of the inherent limitations in calculating profitability as the use of different reasonable allocation methodologies may lead to significantly different results and in reviewing profitability margins over extended periods given the refinements to the methodology over time. The Boards noted that two Independent Board Members, along with independent counsel, serve as the Boards’ liaisons to review and discuss any proposed changes to the methodology prior to the full Boards’ review.
In their review, the Independent Board Members evaluated, among other things, Nuveen Investments’ adjusted operating margins, gross and net revenue margins(pre-tax andafter-tax) for advisory activities for the Nuveen funds, and the revenues, expenses, and net income(pre-tax andafter-tax and before distribution) of Nuveen Investments for fund advisory services for each of the last two calendar years. The Independent Board Members also reviewed an analysis of the key drivers behind the changes in revenues and expenses that impacted profitability in 2018 versus 2017.
In addition to reviewing the profitability in absolute terms, the Independent Board Members also examined comparative profitability data reviewing, among other things, the revenues, expenses and adjusted total company margins of other advisory firms that had publicly available information and comparable assets under management (based on asset size and asset composition) for 2018 and as compared to their adjusted operating margins for 2017. The Independent Board Members, however, recognized the difficulty in comparing the profitability of various fund managers given the limited public information available and the subjective nature of calculating profitability which may be affected by numerous factors
51
Annual Investment Management Agreement Approval Process(continued)
(Unaudited)
including the fund manager’s organizational structure, types of funds, other lines of business, methodology used to allocate expenses and cost of capital. Nevertheless, considering such limitations and based on the information provided, the Boards noted that Nuveen Investments’ adjusted operating margins appeared reasonable when compared to the adjusted margins of the peers.
Aside from Nuveen Investments’ profitability, the Boards recognized that the Adviser is a subsidiary of Nuveen, LLC, the investment management arm of Teachers Insurance and Annuity Association of America (i.e., TIAA). As such, the Boards also reviewed a balance sheet for TIAA reflecting its assets, liabilities and capital and contingency reserves for the 2018 and 2017 calendar years to consider the financial strength of TIAA.
In evaluating the reasonableness of the compensation, the Independent Board Members also considered any other ancillary benefits derived by the respective Fund Adviser from its relationship with the Nuveen funds as discussed in further detail below.
Based on a consideration of all the information provided, the Boards noted that Nuveen Investments’ level of profitability was acceptable and not unreasonable in light of the services provided.
| D. | | Economies of Scale and Whether Fee Levels Reflect These Economies of Scale |
The Independent Board Members considered the extent to which economies of scale may be achieved as a Fund grows and whether these economies of scale have been shared with shareholders. Although the Boards recognized that economies of scale are difficult to measure, the Independent Board Members noted that there are several methods that may be used in seeking to share economies of scale, including through breakpoints in the management fee schedule reducing the fee rates as asset levels grow, fee waivers and/or expense limitation agreements and the Adviser’s investment in its business which can enhance the services provided to the Nuveen funds.
As noted, the management fee is composed of a fund-level component and a complex-level component each with its own breakpoint schedule. In general terms, the breakpoint schedule at the fund level reduces fees as assets in the particular fund pass certain thresholds and the breakpoint schedule at the complex level reduces fees as the eligible assets in the complex pass certain thresholds. The Boards recognized that the Adviser has agreed to reduce the annual fund-level management fee rate charged on average daily managed assets by 15 basis points at each breakpoint under the respective New Investment Management Agreement compared to the current fund-level management fee schedule of each Fund. The Boards further noted that the Adviser agreed to waive fees and reimburse expenses in an amount equal to 1.5% of each Fund’s managed assets for the first six months following the effectiveness of the Restructuring Proposals, 0.75% for the next three months and 0.25% for the next three months, subject to certain conditions being met. In addition to the foregoing, the Boards recognized the Adviser’s continued reinvestment in its business through, among other things, improvements in technology, product innovations and other organization changes designed to leverage efficiencies across the business.
Based on its review, each Board determined that the proposed fee arrangements appropriately share any economies of scale with shareholders.
The Independent Board Members received and considered information regarding other benefits the respective Fund Adviser or its affiliates may receive as a result of their relationship with the Nuveen funds. In this regard, the Boards noted that TAL is an indirect wholly-owned subsidiary of Teachers Insurance and Annuity Association of America (“TIAA”) and an affiliate under common control with Nuveen. The Boards further recognized that Wellington Management was unaffiliated with Nuveen. Accordingly, the Board recognized that the Adviser and its affiliate, TAL, would be retaining all of the advisory fees paid by the Funds under the New Advisory Agreements since the Adviser and TAL are affiliated notwithstanding the reduction in advisory fee rates. Further, the Boards also recognized that the allocation of fees between the Adviser and TAL is different than the allocation of management fees between the Adviser and Wellington Management. In this regard, the Boards noted that the Adviser would receive more of the allocation of management fees under the New Investment Management Agreement than the Adviser had received under the Original Investment Management Agreement.
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In addition, the Independent Board Members considered whether theSub-Adviser uses commissions paid by funds on portfolio transactions to obtain research products and other services (“soft dollar transactions”) and noted that TAL does not participate in soft dollar arrangements with respect to fund portfolio transactions.
Based on their review, the Boards concluded that any indirect benefits received by a Fund Adviser as a result of its relationship with the Funds were reasonable and within acceptable parameters.
The Board Members did not identify any single factor discussed previously asall-important or controlling. The Board Members, including the Independent Board Members, concluded that the terms of each New Advisory Agreement were fair and reasonable, that the respective Fund Adviser’s fees were reasonable in light of the services provided to each Fund, and recommended that shareholders approve the New Advisory Agreements.
If the restructuring does not take effect with respect to a Fund, the respective Fund will terminate in accordance with its terms unless the Board extends the term of the Fund in accordance with the charter documents of the Fund. To avoid any interruption of services, the Boards at the Meeting also renewed the Original Investment Management Agreement and the OriginalSub-Advisory Agreement (collectively, the“Original Advisory Agreements”) permitting the Adviser and Wellington Management to continue to serve as investment adviser andsub-adviser to the Funds, respectively, until their scheduled termination.
| II. | | Renewal of Original Advisory Agreements |
As noted above, at the Meeting, the Board of each Fund, including the Independent Board Members, also renewed, on behalf of its respective Fund, the Original Investment Management Agreement with the Adviser and the OriginalSub-Advisory Agreement with Wellington Management in case the restructuring of the Funds does not occur and the New Advisory Agreements do not become effective. In such circumstances, the Adviser and Wellington Management would continue to serve as investment adviser andsub-adviser, respectively, until the respective Fund’s termination. For purposes of this section, the Adviser and Wellington Management are hereafter the“Original Fund Advisers.”
In response to a request on behalf of the Independent Board Members by independent legal counsel, the Boards received and reviewed prior to the Meeting extensive materials specifically prepared for the annual review of the Original Advisory Agreements by the Adviser as well as by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent provider of investment company data. The materials provided in connection with the annual review covered a breadth of subject matter including, but not limited to, a description of the nature, extent and quality of services provided by the Original Fund Advisers; a review of Wellington Management and its investment team; an analysis of the Fund performance in absolute terms and as compared to the performance of certain peer funds and benchmarks; an analysis of the fees and expense ratios of the Nuveen funds in absolute terms and as compared to those of certain peer funds with a focus on any expense outliers; a review of the secondary market trading of shares of the Nuveenclosed-end funds, including the Funds; a review of the leverage management actions taken on behalf of theclosed-end Nuveen funds; a review of the performance of various service providers; a description of various initiatives Nuveen had undertaken or continued during the year for the benefit of particular Nuveen fund(s) and/or the complex; a description of the profitability or financial data of Nuveen and Wellington Management; and a description of indirect benefits received by the Fund Advisers as a result of their relationships with the Funds. The Board Members held anin-person meeting onApril 17-18, 2019 (the“April Meeting”), in part, to review and discuss the performance of the Funds and the Adviser’s evaluation of Wellington Management. The Independent Board Members asked questions and requested additional information that was provided for the Meeting.
The information prepared specifically for the annual review of the Original Advisory Agreements supplemented the information provided to the Boards and its committees throughout the year. Each Board and its committees met regularly during the year and the information provided and topics discussed were relevant to the review of the Original Advisory Agreements. Some of these reports and other data included, among other things, materials that outlined the investment performance of the Nuveen funds;
53
Annual Investment Management Agreement Approval Process(continued)
(Unaudited)
strategic plans of the Adviser which may impact the services it provides to the Nuveen funds; the review of the Nuveen funds and investment teams; the management of leverage financing forclosed-end funds; the secondary market trading of theclosed-end funds and any actions to address discounts; compliance, regulatory and risk management matters; valuation of securities; fund expenses; payments to financial intermediaries; and overall market and regulatory developments. The Independent Board Members considered the review of advisory arrangements of the Funds to be an ongoing process and employed the accumulated information, knowledge, and experience the Board Members had gained during their tenure on the boards governing the Nuveen funds and working with the Fund Advisers in their review of the Original Advisory Agreements. The original contractual arrangements were the result of multiple years of review, negotiation and information provided in connection with the Boards’ annual review of the Funds’ advisory arrangements and oversight of the Funds.
The Independent Board Members were advised by independent legal counsel during the annual review process as well as throughout the year, including meeting in executive sessions with such counsel at which no representatives from the Adviser or Wellington Management were present. In connection with their annual review, the Independent Board Members also received a memorandum from independent legal counsel outlining their fiduciary duties and legal standards in reviewing investment advisory agreements.
In deciding to renew the Original Advisory Agreements, the Independent Board Members did not identify a particular factor or information as determinative or controlling, but rather the decision reflected the comprehensive consideration of all the information provided, and each Board Member may have attributed different levels of importance to the various factors and information considered in connection with the approval process. The following summarizes the principal factors and information, but not all the factors, the Boards considered in deciding to renew the Original Advisory Agreements and their conclusions.
| A. | | Nature, Extent and Quality of Services |
In evaluating the renewal of the Original Advisory Agreements, the Independent Board Members received and considered information regarding the nature, extent and quality of the applicable Original Fund Adviser’s services provided to the respective Fund with particular focus on the services and enhancements to such services provided during the last year. The Boards recognized that the Adviser provides a comprehensive set of services necessary to operate the Nuveen funds in a highly regulated industry and noted that the scope of such services has expanded over the years as a result of regulatory, market and other developments, such as the development of the liquidity management program and expanded compliance programs. As indicated above with respect to the New Investment Management Agreements, some of the functions the Adviser is responsible for under the Original Investment Management Agreements include, but are not limited to: product management; investment oversight; risk management and securities valuation services; fund accounting and administration services; oversight of shareholder services and transfer agent functions; Board support and administrative services; compliance and regulatory oversight services; legal support and oversight of outside law firms; and leverage, capital and asset maintenance services. In reviewing the scope and quality of services, the Boards recognized the continued efforts and resources the Adviser and its affiliates have employed to continue to enhance its services for the benefit of the complex as well as particular Nuveen funds over recent years. Such service enhancements have included, but are not limited to:
| | • | | Fund Improvements and Product Management Initiatives – continuing to proactively manage the Nuveen fund complex as a whole and at the individual fund level with an aim to enhance the shareholder outcomes through, among other things, repositioning funds, merging funds, introducing additional share classes, reviewing and updating investment policies and benchmarks, modifying the composition of certain portfolio management teams and analyzing various data to help devise such improvements. In this regard, the Adviser proposed the restructuring of the Funds to provide shareholders with the opportunity to maintain their securitized credit exposure or to exit their investment at net asset value through a tender offer; |
| | • | | Capital Initiatives – continuing to invest capital to support new funds with initial capital as well as to facilitate modifications to the strategies or structure of existing Nuveen funds; |
| | • | | Compliance Program Initiatives – continuing efforts to enhance the compliance program through, among other things, internally integrating various portfolio management teams and aligning compliance support accordingly, completing a |
54
| | comprehensive review of existing policies and procedures and revising such policies and procedures as appropriate, enhancing compliance related technologies and workflows, and optimizing compliance shared services across the organization and affiliates; |
| | • | | Risk Management and Valuation Services – continuing efforts to strengthen the risk management functions, including through, among other things, enhancing the interaction and reporting between the investment risk management team and various affiliates, increasing the efficiency of risk monitoring performed on the Nuveen funds through improved reporting, continuing to implement risk programs designed to provide a more disciplined and consistent approach to identifying and mitigating operational risks, continuing progress on implementing a liquidity program that complies with the new liquidity regulatory requirements and continuing to oversee the daily valuation process; |
| | • | | Additional Compliance Services – continuing investment of time and resources necessary to develop the compliance policies and procedures and other related tools necessary to meet the various new regulatory requirements affecting the Nuveen funds that have been adopted over recent years; |
| | • | | Government Relations – continuing efforts of various Nuveen teams and affiliates to advocate and communicate their positions with lawmakers and other regulatory bodies on issues that will impact the Nuveen funds; |
| | • | | Business Continuity, Disaster Recovery and Information Services – establishing an information security program to help identify and manage information security risks, periodically testing disaster recovery plans, maintaining and updating business continuity plans and providing reports to the Boards, at least annually, addressing, among other things, management’s security risk assessment, cyber risk profile, incident tracking and other information technology risk-related reports; |
| | • | | Expanded Dividend Management Services – continuing to expand the services necessary to manage the dividends among the varying types of Nuveen funds that have developed as the Nuveen complex has grown in size and scope; and |
| | • | | with respect specifically toclosed-end funds, such initiatives also included: |
| | • | | Leverage Management Services – continuing to actively manage leverage including developing new leverage instruments, refinancing existing leverage and negotiating reductions in associated leverage expenses; |
| | • | | Capital Management Services – ongoing capital management efforts through a share repurchase program as well as a shelf offering program that raises additional equity capital in seeking to enhance shareholder value; |
| | • | | Data and Market Analytics – continuing focus on analyzing data and market analytics to better understand the ownership cycles and secondary market experience ofclosed-end funds; and |
| | • | | Closed-end Fund Investor Relations Program – maintaining theclosed-end fund investor relations program which, among other things, raises awareness, provides educational materials and cultivates advocacy forclosed-end funds and the Nuveenclosed-end fund product line. |
In addition to the services provided by the Adviser, the Boards also considered the risks borne by the Adviser and its affiliates in managing the Nuveen funds, including entrepreneurial, operational, reputational, regulatory and litigation risks.
The Boards further considered the division of responsibilities between the Adviser and Wellington Management and recognized that Wellington Management and its investment personnel generally are responsible for the management of the respective Fund’s portfolio. The Boards noted that the Adviser oversees Wellington Management and considered an analysis of Wellington Management provided by the Adviser which included, among other things, Wellington Management’s assets under management (“AUM”) and changes thereto, a summary of the investment team and changes thereto, the stability and history of the organization, the investment approach of the team and the performance of the Funds over various periods. The Boards noted that the renewal of the OriginalSub-Advisory Agreements would avoid any disruption in management services if the Restructuring Proposals were not consummated. In this regard, Wellington Management would be permitted to continue assub-adviser until the Funds terminate in accordance with their terms, unless the Boards extended the term of the respective Fund in accordance with the charter documents of the Fund.
55
Annual Investment Management Agreement Approval Process(continued)
(Unaudited)
Based on its review, each Board determined, in the exercise of its reasonable business judgment, that it was satisfied with the nature, extent and quality of services provided to the respective Fund under each applicable Original Advisory Agreement.
| B. | | The Investment Performance of the Funds and Fund Advisers |
In evaluating the quality of the services provided by the Original Fund Advisers, the Boards also reviewed the investment performance of the Funds. As noted, the Boards reviewed each Fund’s performance over the quarter,one-,three- andfive-year periods ending December 31, 2018 as well as performance data for the first quarter of 2019 ending March 29, 2019. The Independent Board Members recognized that they had reviewed Fund performance over various time periods at their quarterly meetings throughout the year. The Boards reviewed Fund performance on an absolute basis and in comparison to the Performance Peer Group and its benchmark. In reviewing performance, the Board Members were aware of the inherent limitations in comparative performance data as the fund peers or benchmarks may pursue differing objective(s), strategies or other characteristics that limit the value of the comparative data. In addition to the foregoing, in recognizing the importance of secondary market trading to shareholders ofclosed-end funds, the Boards also reviewed, among other things, the premium or discount to net asset value of the Funds as of a specified date as well as the Funds’ total return based on net asset value and market price over various periods.
In their review, the Boards noted that for Mortgage Opportunity, such Fund ranked in the third quartile of its Performance Peer Group for theone-year period, first quartile in the three-year period and second quartile in the five-year period ended December 31, 2018. The Fund also outperformed its benchmark, the Barclays US Aggregate Bond Index, in theone-, three- and five-year periods ended December 31, 2018. In addition, for Mortgage Opportunity 2, the Fund ranked in the third quartile of its Performance Peer Group for theone-year period and second quartile in the three- and five-year periods ended December 31, 2018. The Fund also outperformed its benchmark, the Barclays US Aggregate Bond Index, in theone-, three- and five-year periods ended December 31, 2018. Each Board was satisfied with its Fund’s overall performance.
| C. | | Fees, Expenses and Profitability |
In their annual review, the Boards considered the fees paid to the Original Fund Advisers and the total operating expense ratio of the respective Fund, before and after any undertaking by Nuveen to limit the Fund’s total annual operating expenses to certain levels. As noted above, the Boards considered, among other things, the Funds’ current advisory andsub-advisory fee schedules and the respective Fund’s gross and net management fee rates and net total expense ratio in relation to those in its Peer Universe. Although the Boards noted that each Fund had a net management fee and net expense ratio (excluding investment-related expenses of leverage and taxes) that were higher than its respective peer averages based on common assets for the latest fiscal year, the Boards had recognized the differences between the strategies of the applicable Fund and its respective Peer Universe which limited some of the value of the comparative data. In this regard, the Boards noted that the Funds’ net expense ratios were higher than the average of their Peer Universe, in part, due to the limited size of the Peer Universe which contained only threenon-Nuveen funds. Further, the Boards recognized that differences in the amount, terms and cost of leverage employed by the Funds compared to peers as well as differences in fee waivers also impacted the comparative data. Based upon its review, each Board determined that its Fund’s management fees to the respective Original Fund Adviser were reasonable in light of the nature, extent and quality of services provided to the applicable Fund.
| | 2. | | Comparisons with the Fees of Other Clients |
In determining the appropriateness of fees, the Boards also considered information regarding the range of fees the Adviser and its affiliates charged for certain other types of clients and the type of services provided to these other clients. With respect to the Adviser and/or affiliatedsub-advisers, such other clients may include: retail and institutional accounts; hedge funds;sub-advised funds outside the Nuveen family; foreign investment companies offered by Nuveen; collective investment trusts; and exchange-traded funds offered by Nuveen. In addition to the comparative fee data, the Boards also reviewed, among other things, a description of the different levels of services provided to these clients compared to the services provided to the Funds as well as the differences in portfolio investment policies, investor profiles, account sizes and regulatory requirements, all of which contribute to the variations in the fee schedules. The Boards noted, among other things, the wide range of services in addition to investment management services provided to the Nuveen funds when the Adviser is
56
principally responsible for all aspects of operating the funds, including the increased regulatory requirements that must be met in managing the funds, the larger account sizes of managed accounts and hedge funds and the increased entrepreneurial, legal and regulatory risks that the Adviser incurs in sponsoring and managing the funds. The Boards concluded the varying levels of fees were justified given, among other things, the inherent differences in the products and the level of services provided to the Nuveen funds versus other clients, the differing regulatory requirements and legal liabilities and the entrepreneurial, legal and regulatory risks incurred in sponsoring and advising a registered investment company.
| | 3. | | Profitability of Fund Advisers |
As noted above, the Independent Board Members considered Nuveen Investments’ level of profitability for its advisory services to the Nuveen funds for the calendar years 2018 and 2017 in its review of fees. The Independent Board Members had reviewed, among other things, Nuveen’s net margins(pre-tax) (both including and excluding distribution expenses); gross and net revenue margins(pre- andpost-tax); revenues, expenses and net income(pre-tax andafter-tax and before distribution) of Nuveen for fund advisory services and comparative profitability data comparing the adjusted margins of Nuveen compared to the adjusted margins of certain peers with publicly available data and with the most comparable assets under management (based on asset size and asset composition) for each of the last two calendar years. The Independent Board Members noted that Nuveen’s net margins were higher in 2018 than the previous year and considered the key drivers behind the revenue and expense changes that impacted Nuveen’s net margins between the years. The Boards considered the costs of investments in the Nuveen business, including the investment of seed capital in certain Nuveen funds and additional investments in infrastructure and technology. The Independent Board Members also noted that Nuveen’s adjusted margins from its relationships with the Nuveen funds were on the low range compared to the adjusted margins of the peers; however, the Independent Board Members recognized the inherent limitations of the comparative data of publicly traded peers given that the calculation of profitability is rather subjective and numerous factors (such as types of funds, business mix, cost of capital, methodology to allocate expenses and other factors) can have a significant impact on the results.
The Independent Board Members also reviewed a description of the expense allocation methodology employed to develop the financial information and a summary of the history of changes to the methodology over theten-year period from 2008 to 2018, and recognized that other reasonable allocation methodologies could be employed and lead to significantly different results. The Boards noted that two Independent Board Members, along with independent counsel, serve as the Boards’ liaisons to review profitability and discuss any proposed changes to the methodology prior to a full Board’s review.
Aside from Nuveen’s profitability, the Boards recognized that the Adviser is a subsidiary of Nuveen, LLC, the investment management arm of TIAA and reviewed a balance sheet for TIAA reflecting its assets, liabilities and capital and contingency reserves for the 2018 and 2017 calendar years to consider the financial strength of TIAA having recognized the importance of having an adviser with significant resources.
In addition to Nuveen, the Independent Board Members also considered the profitability of Wellington Management from its relationship to the Funds. In this regard, the Boards reviewed certain unaudited financial data of Wellington Management, including revenues, expenses and net income(pre-tax andpost-tax) for the years ended December 31, 2018, 2017 and 2016.
In evaluating the reasonableness of the compensation, the Independent Board Members also considered any other ancillary benefits derived by the respective Fund Adviser from its relationship with the Nuveen funds as discussed in further detail below.
Based on a consideration of all the information provided, the Boards noted that Nuveen’s and Wellington Management’s level of profitability was acceptable and not unreasonable in light of the services provided.
| D. | | Economies of Scale and Whether Fee Levels Reflect These Economies of Scale |
With respect to economies of scale, the Independent Board Members noted that although economies of scale are difficult to measure, the Adviser shares the benefits of economies of scale in various ways including breakpoints in the management fee schedule (subject to limited exceptions noted below) and investments in its business which can enhance the services provided to the Funds for the fees paid. The Funds pay a management fee comprised of a fund-level component and complex-level component each with its own breakpoint schedule to take advantage of economies of scale that may occur not
57
Annual Investment Management Agreement Approval Process(continued)
(Unaudited)
only when the assets of a particular Fund grow but also when the assets in the complex grow. The Boards reviewed the breakpoint schedules.
In addition, the Independent Board Members recognized the Adviser’s continued reinvestment in its business through, among other things, investments in its business infrastructure and information technology, portfolio accounting system as well as other systems and platforms that will, among other things, support growth, simplify and enhance information sharing, and enhance the investment process to the benefit of all of the Nuveen funds.
Based on its review, the Boards concluded that the current fee arrangements together with the Adviser’s reinvestment in its business appropriately shared any economies of scale with shareholders.
The Independent Board Members received and considered information regarding other benefits the respective Original Fund Adviser or its affiliates may receive as a result of their relationship with the Nuveen funds. The Independent Board Members reviewed the revenues that an affiliate of the Adviser received in 2018 as a result of serving as the underwriter on shelf offerings of existing Nuveenclosed-end funds. In addition, the Independent Board Members considered whether Wellington Management uses commissions paid by the Funds on portfolio transactions to obtain research products and other services (“soft dollar transactions”). The Boards noted that Wellington Management does not participate in soft dollar transactions with respect to Fund portfolio transactions.
Based on their review, the Boards concluded that any indirect benefits received by an Original Fund Adviser as a result of its relationship with the Funds were reasonable and within acceptable parameters.
The Board Members did not identify any single factor discussed previously asall-important or controlling. The Board Members recognized that the Funds may be restructured and that if the Restructuring Proposals are consummated, the Funds would no longer be term funds and would continue with the Adviser as investment adviser and TAL as the newsub-adviser. Nevertheless, to avoid any disruption in services if the restructuring does not occur and the New Advisory Agreements are not approved, the Board Members, including the Independent Board Members, approved the Original Advisory Agreements, determined that the terms of each Original Advisory Agreement were fair and reasonable, that the respective Original Fund Adviser’s fees were reasonable in light of the services provided to each Fund and that the Original Advisory Agreements be renewed to permit the continuation of services if the Restructuring Proposals are not consummated.
58
Notes
59
Nuveen:
Serving Investors for Generations
Since 1898, financial advisors and their clients have relied on Nuveen to provide
dependable investment solutions through continued adherence to proven, long-term investing
principles. Today, we offer a range of high quality solutions designed to
be integral components of a well-diversified core portfolio.
Focused on meeting investor needs.
Nuveen is the investment manager of TIAA. We have grown into one of the world’s premier global asset managers, with specialist knowledge across all major asset classes and particular strength in solutions that provide income for investors and that draw on our expertise in alternatives and responsible investing. Nuveen is driven not only by the independent investment processes across the firm, but also the insights, risk management, analytics and other tools and resources that a truly world-class platform provides. As a global asset manager, our mission is to work in partnership with our clients to create solutions which help them secure their financial future.
Find out how we can help you.
To learn more about how the products and services of Nuveen may be able to help you meet your financial goals, talk to your financial advisor, or call us at(800) 257-8787. Please read the information provided carefully before you invest. Investors should consider the investment objective and policies, risk considerations, charges and expenses of any investment carefully. Where applicable, be sure to obtain a prospectus, which contains this and other relevant information. To obtain a prospectus, please contact your securities representative or Nuveen, 333 W. Wacker Dr., Chicago, IL 60606. Please read the prospectus carefully before you invest or send money.
Learn more about Nuveen Funds at:www.nuveen.com/closed-end-funds
| | | | |
| Nuveen Securities, LLC, member FINRA and SIPC | 333 West Wacker Drive Chicago, IL 60606 | www.nuveen.com | | | | ESA-H-0619D
915409-INV-B-08/20 |
Item 2. Code of Ethics.
Not applicable to this filing.
Item 3. Audit Committee Financial Expert.
Not applicable to this filing.
Item 4. Principal Accountant Fees and Services.
Not applicable to this filing.
Item 5. Audit Committee of Listed Registrants.
Not applicable to this filing.
Item 6. Schedule of Investments.
(a) See Portfolio of Investments in Item 1.
(b) Not applicable.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable to this filing.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable to this filing.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
There have been no material changes to the procedures by which shareholders may recommend nominees to the registrant’s Board implemented after the registrant last provided disclosure in response to this item.
Item 11. Controls and Procedures.
| (a) | The registrant’s principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”) (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of this report that includes the disclosure required by this paragraph, based on their evaluation of the controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (17 CFR 240.13a-15(b) or 240.15d-15(b)). |
| (b) | There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.
Not applicable.
Item 13. Exhibits.
File the exhibits listed below as part of this Form.
(a)(1) Any code of ethics, or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy the Item 2 requirements through filing of an exhibit: Not applicable to this filing.
(a)(2) A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the 1940 Act (17 CFR 270.30a-2(a)) in the exact form set forth below: See EX-99.CERT attached hereto.
(a)(3) Any written solicitation to purchase securities under Rule 23c-1 under the 1940 Act (17 CFR 270.23c-1) sent or given during the period covered by the report by or on behalf of the registrant to 10 or more persons: Not applicable.
(a)(4) Change in the registrant’s independent public accountant. Not applicable.
(b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act, provide the certifications required by Rule 30a-2 (b) under the 1940 Act (17 CFR 270.30a-2(b)), Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17 CFR 240.13a-14(b) or 240.15d-14(b)), and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350) as an Exhibit. A certification furnished pursuant to this paragraph will not be deemed “filed” for purposes of Section 18 of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent that the registration specifically incorporates it by reference: See EX-99.906 CERT attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Nuveen Mortgage Opportunity Term Fund 2
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| By (Signature and Title) | | /s/ Gifford R. Zimmerman | | |
| | Gifford R. Zimmerman | | |
| | Vice President and Secretary | | |
Date: September 5, 2019
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | | | |
| By (Signature and Title) | | /s/ Cedric H. Antosiewicz | | |
| | Cedric H. Antosiewicz | | |
| | Chief Administrative Officer | | |
| | (principal executive officer) | | |
Date: September 5, 2019
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| By (Signature and Title) | | /s/ E. Scott Wickerham | | |
| | E. Scott Wickerham | | |
| | Vice President and Controller | | |
| | (principal financial officer) | | |
Date: September 5, 2019
